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JUN 14 2017

ONGC, HPCL working together will be a challenge

  • Economic Times, ET Bureau / Hyderabad
  • Created: Wed 14th JUN 2017

 

With the Oil and Natural Gas Corporation keen on acquiring Hindustan Petroleum Corporation, the Centre will have every reason to be pleased.

For one thing, the sale of its 51 per cent stake in HPCL will rake in Rs. 30,000 crore. It will also set in motion the process of creating an integrated oil company which was announced in the Budget earlier this year.

Yet, to assume that the new relationship between ONGC and HPCL will be all hunky-dory is wishful thinking. Both organisations have different work cultures and this will be a huge challenge when it comes to dealing with a combined workforce of over 50,000 people.

With ONGC clearly in the lead as the acquirer, HPCL will take second place in the revised scheme of things. The Centre, will of course, continue to be the owner of this new entity, but ONGC could have a larger say in daily operations. This is where ego clashes can come into play, especially at the senior level which could be quite disruptive.

“HPCL’s corporate identity will be intact but greater authority will rest with ONGC in the overall scheme of things. Whether this will affect smooth working remains to be seen,” says an oil industry executive. On the face of it, there should ideally be no clash given that one company is focussed on exploration and production, while the other, HPCL, is in the downstream space of refining and marketing.

However, should ONGC assume a larger role in day-to-day functioning, it could result in awkward situations. “One must wait and see how the CEO’s role pans out. Ideally, there should be one each for ONGC and HPCL to ensure that the show goes on irrespective of a change in hands,” says an industry observer.

This is where ego clashes are best avoided so that an integrated oil company sets about achieving the objectives it has been created for in the first place. Only transparency and efficient leadership that will eventually win the trust and confidence of the people within the new entity. It also remains to be seen how this marriage will impact some critical investments of HPCL like the Rajasthan refinery which has just got the go-ahead after nearly five years. Will ONGC, for instance, help out in arranging crude supplies for this project as part of its domain expertise?

Both companies are already partners in Mangalore Refinery & Petrochemicals which was initially a joint venture of HPCL and the AV Birla group.

When things were not working out to plan, ONGC was quick to snap up MRPL where it has a stake of 72 per cent. HPCL is a poor second with 17 per cent, when it was an equal partner at one point in time, and this loss rankles even today.

Restructuring efforts in public sector oil companies have happened in the not-so-distant past when standalone refiners went into the custody of stronger marketing allies. This saw IndianOil take charge of Chennai Petroleum Corporation, while Bharat Petroleum, similarly, acquired Kochi Refinery.

Subsequently, ONGC and IOC also attempted to join hands and share expertise in their core areas but nothing came out of this.

The Centre, of course, made money from a cross-holding deal between the two companies (apart from GAIL India) which is pretty much what will happen with ONGC and HPCL. How this will contribute to the cause of an integrated oil company remains to be seen.

Going forward, there could be similar scenarios emerging with either IOC or BPCL teaming up with Oil India for yet another combined energy powerhouse. Likewise, GAIL India could also find another ally in this exercise.

 

Tags

Rajasthan Bombay Electricity Supply and Transport Chennai Mangalore Refinery And Petrochemicals Limited Gas Natural Gas Oil ONGC Gail India Energy Refinery Joint Venture Petroleum Hindustan Petroleum Corporation Limited Bharat Petroleum Corporation Limited Kochi Refinery Budget India BPCL ongc

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