By R. Sasankan
Journalists,
especially outspoken ones, can often get up people’s snouts with their
sweeping observations. But this is a tactic that reporters often use to
needle people who generally prefer silence over imprudent comment in the
hope that they will cast aside their natural propensity towards
reticence.
In my latest article on the ONGC-HPCL merger which appeared in the free
access column, Petro Intelligence, of www.indianoilandgas.com on July
25, I deliberately wrote: “The plan to create an oil behemoth that would
match the power and pelf of global industry peers may have been well
intentioned but experts in the industry were pretty aghast when it was
unveiled… Bureaucrats and oil industry experts preferred to remain
silent and not voice their misgivings about the merger.”
That comment provoked an immediate response from a number of people who
have widely been regarded as experts in the petroleum industry. The
first to react was Dr Vijay Kelkar. Before becoming the country’s
finance secretary, he was secretary (petroleum) for three years and
presided over the oil sector reforms initiated in the late 1990s. Dr
Kelkar objected to my observation that “industry experts preferred to
remain silent and not voice their misgivings about the merger”.
Dr
Kelkar vehemently rebutted that criticism and suggested that it was the
media – and not the experts – that had chosen to remain quiet. He
recalled that at the meeting called to discuss the issue, he had pleaded
with the ministers not to go ahead with move. He asked me to
cross-check this fact with M.K. Surana, HPCL’s CMD, who was present at
the meeting.
All over the world, the tendency is to split oil companies and not
integrate them. The experts say in today’s world where there is a better
balance between crude oil supply and demand, there is no compelling
need for an integrated oil company. This has been clearly demonstrated
by ConocoPhillips which was broken up into downstream and upstream
entities, both of which are performing better than they did when they
were part of an integrated company. The US-based Anadarko is another
example of a pure and independent E&P company which is regarded as a
global success.
Bikas Chandra Bora, former CMD of ONGC, one of the sharpest brains in
the oil sector, also described the ONGC-HPCL merger as a move that was
taken in haste and totally undesirable. Bora was a member of the
Krishnamurthy committee which opposed the merger that had been proposed
by former petroleum minister Mani Shankar Aiyer. “The merger is doomed
to failure even before it started,” said Sudhir Jatar, former CMD of
Oil India and a respected figure in the oil industry.
Can
the merger be undone? I posed this question to these experts. “ONGC
should develop its own long range plan. It should consider getting a
divorce from HPCL. Since Saudi Arabia’s Aramco has shown interest in
investing in India’s downstream, ONGC should consider selling its
interest to Aramco. Before that, it should accept the share swap offer
of HPCL and merge MRPL with it. This will be a win-win situation for
both HPCL and ONGC,” said Dr Bhamy Shenoy, a US-based oil expert who has
worked with several multinational oil companies and regulatory bodies
overseas.
The government is now trying to lure foreign oil companies to invest in
India’s hydrocarbon exploration sector. India’s crude oil production has
been stagnating for quite a few years now and it can go up
significantly only if new oil and gas discoveries are made in a few new
basins. This calls for enormous financial resources and the government
is in no position to stump up the money. Fields in the producing basins
have gone into decline, as is expected, and only a marginal increase can
be expected even after harnessing new technologies.
Bora
argues that private oil companies will not enter difficult basins
unless the ONGC and Oil India can demonstrate the hydrocarbon potential
by first drilling high-cost, high-risk wells. For this, these upstream
companies need financial resources. He believes that these companies
should not be allowed to divert their resources to other areas of
activity and ought not to lose sight of their primary focus on
exploration. Consequently, the demerger of ONGC-HPCL is a vital
necessity. In his view, the best option will be to merge HPCL with BPCL.
Dr Surya P. Sethi, an outstanding energy expert of international
standing, also acknowledges that the merger was an unwise decision.
Sethi, who served as India’s principal advisor (energy), returned to
India from the Washington-based International Finance Corporation, a
member of the World Bank group, at the invitation from then Prime
Minister A.B.Vajpayee. He recalls a long discussion, one-on-one, he had
with Mani Shankar Aiyer on the subject back in those days. Dr Sethi’s
advice was to create a single strong upstream CPSU and privatise the
downstream sector to create competing oil and gas marketing companies.
In his view, genuine competition among the downstream companies is
essential to create an efficient hydrocarbon sector.
He wanted GAIL to be made a pure pipeline and storage company held by
the Centre to create pipeline and storage infrastructure with no
interest in the product. It would be a regulated transport and storage
utility without any stake in the content. GAIL, in his view, should have
been given all port handling storage and pipeline assets covering both
oil and gas.
The
private sector could establish integrated facilities that would be
heavily regulated and could only establish dedicated/ captive pipeline
transportation and storage infrastructure if they so desired. Instead of
pump prices, the government could regulate refinery gate prices for
domestic end-use.
Dr Sethi insists that the proposal he made to Aiyer is still the ideal
structure. Finer details can be worked out through extensive
discussions.
Can the government go ahead with the merger ignoring the views of so
many petroleum experts? These are genuine experts who are not associated
with any political party. ONGC was never interested in acquiring a
share in HPCL until it was forced to do so.
The management of HPCL has not shown any interest to be acquired by
ONGC. Even now, HPCL has shown little interest in working with the ONGC
management to complete the takeover. Why can’t we simply dissolve a
marriage that neither partner really wants?