Merger of ONGC-HPCL

Why in news?

The Union Cabinet nodded to the purchase of Hindustan Petroleum Corporation Limited by the Oil and Natural Gas Corporation.

What is the status of oil firms in India?

• India imports –
  1. 80% of its crude oil demand.
  2. 50% of its liquefied petroleum gas (LPG) demand.
  3. 35% of its natural gas requirement.
• India has 18 PSU oil firms.
• Hindustan Petroleum Corporation (HPCL) is the country’s second largest fuel retailer.
• Oil and Natural Gas Corporation (ONGC), is the country’s largest oil producer.
• Gas (India) Limited (GAIL) is the largest state-owned natural gas processing and distribution company in India.

What is the need for the merger?

• India’s oil import dependency is likely to rise up to 90%.
• The primary reason is to improve the handle on energy security for the country.
• The merger of public sector oil companies will create larger entities and a national brand.
• Many Asian countries have single integrated oil companies, India want to try this model.
• The occupational and maintenance cost of various agencies for one single sector is tedious.

What are the advantages of the merger?

• Helps India to compete at the global level, and help better absorb oil price shocks.
• Promotes economic growth by cut on various managing expenses.
• Helps the government for proper utilization of financial resources and technological expertise.
• There are possibilities of exploring domestic oil potential.

What are the concerns of the merger?

• There is question on financial viability of ONGC to make this deal.
• There are proofs for the inefficiency of ONGC investment on different firms. 
• There was a slippage in HPCL’s share price on the BSE.
• There are concerns about assimilating employees from very different work cultures.
• The quality of service may be reduced, due to lack of competition.

Source: The Hindu, Business Standard