Can The New Oil Behemoth Address Problem Of Import Dependence?
Mumbai: Union Finance Minister Arun Jaitley, in his budget speech for year 2017-18, announced that the Centre was considering opportunities to strengthen Central Public Sector Undertakings by way of merging, consolidation and acquisition.
Listing various benefits that a possible synergy could provide with such action, he proposed creation of an oil major in the public sector, which will be able to match the performance of international and domestic private sector oil and gas companies.
Ever since Arun Jaitley made the proposal for creation of an oil major, there have been speculations as to what will be in the offing.
Ending the five-and-a-half month uncertainty, the Union Cabinet gave its in-principle nod to public sector oil and gas explorer ONGC to acquire HPCL, which has refineries at Mumbai and Visakhapatnam. The oil giant ONGC also has a refinery at Mangalore in Karnataka.
Although the decision to integrate upstream and downstream oil companies is justified on grounds that the new gigantic avatar would demonstrate greater abilities in terms of crude purchase and technological upgrade, the reason behind the move is quite obvious.
The Centre has set its disinvestment target at Rs 72,500 crore for the present fiscal. The present deal is going to help it meet a third of its target. It remains to be seen what more is in the offing, as the Centre is yet to meet two-thirds of its disinvestment target.
Integration of CPSUs, according to Arun Jaitley, would give them the capacity to bear higher risks, avail economies of scale, take bigger investment decisions and create more value for stakeholders. There is no denying the fact they will give the new company a fresh edge. But the apparent objective of integration of PSUs – to meet the disinvestment target – is concealed under the business rhetoric.
The Finance Minister appears to be more interested in meeting disinvestment targets, rather than in increasing energy security. For long, India has depended on Persian Gulf and oil rich countries for crude oil, cooking gas and natural gas supplies in the absence of efficient domestic exploration activities. According to a projection, 80 per cent of crude oil and 50 per cent of cooking gas and 30 per cent of natural gas of our requirements are being imported.
This import dependence is going to touch 90 per cent by 2040, according to International Energy Association (IEA) projections. It is felt that energy security is possible only when domestic production is significantly increased. This is one of the major roles the oil behemoth is expected to play. But it appears no light has been thrown on this aspect by the government.
ONGC has to fork out from its coffers about Rs. 30,000 crore for acquiring HPCL as a subsidiary, which will push its expansion activities on the backburner. Right at the moment, it is the government that has reaped benefit from the integration.