Merged PSU energy giant to have global edge: B Ashok, IOC Chairman

MUMBAI: The merger of state-run energy companies will provide India the muscle to acquire assets abroad and negotiate better, but the business model of the new entity thus created will be key to its success, chairman of the country’s largest oil marketing firm said.

Finance minister Arun Jaitley in the Union Budget last week announced a proposal to merge stateowned oil companies to create an integrated oil behemoth, which could potentially top $100 billion in market value and enter the league of global oil heavyweights.

“Energy is critical and strategic for the growth that India aspires for,” Indian Oil Corp chairman B Ashok told ET.




“Consolidation would help us strengthen, leverage and enhance our position more strongly in the international market. This will not happen overnight and we will have to work on different models, but it is the way forward.”

Indian Oil is the top-ranking Indian company on the ‘Fortune 500’ list for 2016 at 161, with the other two state-run oil marketing companies also making it to the list.

The merged entity would be catapulted to the league of global majors such as BP, which has a market value of $115 billion.

“The top ranking energy companies on ‘Fortune 500’ are integrated players. While we are on the list, individually we are much smaller in scale. The merger would help scale and consolidate our position in the world,” Ashok said. “An integrated company can absorb volatility much better.”

On concerns that the merged entity may have to cut down on staff to reduce duplication and redundancies, Ashok said the government will have to work on a model that works best to leverage the strengths of these companies.

“The thought process for being consolidated across the value chain has been in place for a long time. IOC has believed in this model and has been working towards it. Simultaneously, we have been removing duplications in our operations and staff,” he said.

In 2005, an official panel had advised against the merger of the state run oil companies, saying that a dominant entity may not be good for competition in an energy-starved country.

“Industry has grown a lot and those concerns are not relevant anymore. This is the right time for such a move,” IOC chairman said.

The top eight public sector oil companies together would have a market value of $108 billion, which would surpass the $50 billion of India’s Reliance Industries and that of the $70 billion Russian major Rosneft, which is increasing its presence in India by buying stake in Essar’s refinery.