ONGC& HPCL, A FUTILE MERGER
I distinctly remember sometimes during 2003, the similar merger was proposed by erstwhile NDA Government and we the leaders of now extinct OSOA (Oil sector officers Association ) along with ONGC’s officers Association Named ASTO(Association of Scientific & technical Officers) had vehemently opposed it on the ground that ONGC does not understand the word “Customer’ because they never had any. Matter was laid to rest since the Petroleum minister &Ministry were recovering from a failed attempt of privatizing 2 Oil companies HPCL& BPCL.
15 years down the line same NDA ,emboldened by a huge mandate in 2014 has once again raised the same initiative albeit with a different perspective , present Government wants to create an Oil Behemoth like Exxon-Mobil, shell ,Chevron, Saudi Aramco and many others. The game plan this time is to sell Government stake in HPCL which is 51.1 % to ONGC at a 15% premium of prevailing market rate i.e approx.@Rs480/= per share . in the process ONGC will be poorer by Rs 39000 Cr only and Government will pocket this money. This money will be shown as divestment proceeds in Government’s Books. It will be used for “eternally Empty” “Black hole’ named fiscal Deficit. The Party spokespersons on TV Channels will justify that this money will be definitely utilized for various social objectives launched by Hon. PM for invisible “Vikas”.
Both these PSU’s are diagonally opposite in culture , ONGC an upstream oil & Gas explorer in India & abroad, while HPCL is India’s 3rd ranking downstream oil Marketing company (OMC) with a market share of approximately 25% in Retail Sales. .It is also proposed that MRPL (Mangalore Refinery & Petrochemicals ltd) where HPCL had 17% equity will be merged with HPCL , all in the name of creating “synergies” .
ONGC or erstwhile Oil & Natural Gas commission could never Graduate from ‘commission to Professional Corporate’, the inherent commission culture ensured that nothing works there without commissions, may it be hiring of Rigs, maintenance of Platforms , services and Purchase of consumables. They have 2 major incidences of chopper crashes in last 10 years killing 2 Dozen People. It is reliably understood that one Private Oil Major Explorer in KG Basin swiftly siphoned off their Gas , which ONGC learnt much later and made a ‘Hue & cry’ about it .
At more then 69% Government Equity in ONGC makes it almost a Government Arm with a miniscule Public participation , It runs on Governments whims& fancies, all decisions are taken on 2nd floor of Shastri Bhawan to be ratified by the Board . Consequences of such decision making are detrimental to ONGC , its flagship Bombay High Production is dwindling, No New wells have been explored in recent past . The overall production of crude oil in last 30 years is either stagnant or declining at present only 23TMT. Sometimes in 80’s when India’s crude oil need was 60 MT , ONGC was contributing around 50% , however today when requirement is above 200TMT , ONGC’s share is meager 12% ,which is profusely bleeding Government’s foreign exchange resources .
ONGC has miserably failed in India’s dream of achieving self sufficiency in Petroleum Needs, forcing us today to stand with a Begging bowl before west & middle east . We are extremely vulnerable on 2 counts fluctuating Dollar & OPEC dictated Crude Price .Our foreign exchange outgo only on crude is approximately 90 Bn Dollars (Estimated for 2017-18), translates into Rs 5.5 Lakh Cr, with rising Petroleum Product consumption @5% annually the crude Bill would keep on bloating. The only “silver lining” in ONGC.s operations is its Gas Production , which is constantly on rise and substantially sufficing India’s need.
ONGCs financials are wholly dependent upon International crude oil price , while crude oil was hovering around 100—150$ /Bbl in the UPA era , it suddenly crashed to 30$/Bbl somewhere in the beginning of 2015.Nation called it “Modi Luck”. ONGC made hefty profits during UPA regime , since it is compensated to the extent 75% of International Price for internal consumption. ONGC fortunes started slipping with lower crude price in last 3 years . Government made best use of the opportunity by Retaining same selling Price of products, they squeezed Nation by raising Excise duty at least 10 times, and pocketed cool Rs 6 Lakh Cr in these 3 years. However crude is once again looking up & touched approximately 70$/ Bbl & ONGC share went up from Rs150 to Rs 227 in last 2 months.
HPCL is no bright company either , ranked 3rd OMC after Indian oil & Bharat Petroleum always retailing 50% more than its refining capacity by virtue of its retail outlets strength which is approximate 13000,most of which HPCL had inherited from ESSO & Caltex .At one stage in the year 2000 the same NDA Government had almost sold off HPCL& BPCL . Essar, Reliance , British Petroleum were the suitors. Whether earlier NDA or present , both have been Corporate friendly .The same OSOA had fought this Privatization tooth &Nail .Writer being a Co- Convener of said Association had mobilized officers & Employees Nationwide numbering Approximately 80,000 to oppose selling the “Family Silver” .Government was adamant , though did not have a brutal Majority like today. It was opposed in Parliament by Congress, Communist and others. However the move was stopped by Hon’ble supreme Court in a Landmark Judgment delivered on Sept.16th 2003.
What court said that these companies HPCL(erstwhile Caltex &Esso) and BPCL(erstwhile Burmah Shell) were Nationalized by an Act of Parliament in 1974, therefore they cannot be sold or change of hands unless the said Act is repealed. Government had no guts to do that , since that would have required a 2/3rd Majority, which they could not muster to collect.
This came as a rude shock to then Government and it is rumored that such loss of face became one reason for their rout in forthcoming Elections of 2004.
HPCL ‘s equity was diluted as early as in year 2000, with the intention to sell it off ASAP , it was brought down to 51.1% the lowest amongst all 13 oil companies under Ministry of Petroleum & Natural Gas. Government wanted to sell either 26% equity or sell it enbloc to a Private Player .This would have enriched Government by Rs 20000 Cr at then share price of HPCL. Government completely overlooked the fact that such mergers adversely affect the morale of the Employees. Specially of a corporate which was consistently making Profits, paying Dividends and retailing almost 25% of the Nation’s Petroleum requirement. HPCL had nearly 13000 Retail outlets and was expanding it every year. Unfortunately Government’s myopic vision does not see beyond Rs 39000 Cr by transferring now it to ONGC.
The impact of this merger will be fatal for ONGC , who is selling its stake in IOC & GAIL apart from borrowing funds from Banks. I foresee a bleak future for ONGC for at least next 5 years, shaving off Rs 39000 Cr from its Balance sheet, rightly commented by one Senior Executive from ONGC that they will be shortly in the league of HMT or Hindustan Photo Films.
HPCL’s 11000 officers & Employees are a demoralized lot today despite earning handsome Profits, stable operations, Good Marketing Margins and Expansion Plans, they will be forced to play 2nd fiddle to their Masters in ONGC, whose Board will decide their functioning. Top HPCL, bosses will be subordinate to ONGC Board .Their company will be another subsidiary of ONGC like Dahej SEZ or ONGC Videsh .This is bound to lower their Morale , Efficiency, Sovereignty and freedom of taking decisions. They have none else to blame but to themselves since they could not stand by their leaders, while Government systematically butchered their collectives.
Present collectives the “so called” Maharatna Association of PSUs are toothless tigers , mere stooge of ruling dispensation, who have no courage to speak against Governments Road Rolling decisions. Instead of this kind of swap the ONGC’s equity could have been diluted by a Public issue to fill Government coffers. The decision of this merger is no better then the “Demonetization’ which harmed every stakeholder, in instant case it has destroyed 2 Healthy Corporates .
May the better sense prevail.
Ravi Srivastava
B.Sc, B.Tech(Chem.Engg), PGP in Cyber Law
Former Oil Company Executive