Though the government plans to merge state-run oil companies to create a behemoth t o take on competition from overseas integrated players, gas major GAIL (India) — which comes under the ambit of the proposal — may remain a separate vertical even in a merged entity.
“Though it is difficult to say what structure the mergers will have, our kind of business matches with nobody. Even if one company is created, probably GAIL will remain a separate vertical,” said a senior company executive requesting not to be named. FM Arun Jaitley in his Budget last week announced the government’s plan to merge state-run oil & gas entities to create an integrated company, which will have the bandwidth to take on international and domestic private oil & gas companies. He said it will provide the merged entity “capacity to bear higher risks, avail economies of scale, take higher investment decisions and create more value for the stakeholders”.
There are 13 oil & gas state-run utilities including Oil and Natural Gas Corp, Oil India, GAIL, Bharat Petroleum Corp, Indian Oil Corp and Hindustan Petroleum Corp, among others. However, oil minister Dharmendra Pradhan later clarified that not all companies will be merged together and the idea, which is at a deliberation stage, will look to align different capabilities.
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An oil sector expert, requesting not to be named, said that it is still not clear whether there will be a separate oil company and gas company, and one will have to wait till guidelines are clear.
The idea is to create integrated companies such as Royal Dutch Shell or BP Plc, which are engaged in businesses starting from oil & gas extraction to retailing. The government is still to clarify the roadmap of such an exercise in terms of whether it will be a merger of explorers, oil marketing companies, or if any other structure will be formed.
The GAIL executive, however, maintained that it is a good idea to merge companies. “Since you will have a large entity, you have multiple advantages. It gives you scale and the financial muscle to reach out. It provides synergies in various sectors. It reduces unnecessary duplication of infrastructure at times. It gives you financial strength where you could talk about bigger scale,” said the executive.
The executive, however, was quick to add the management-side risks, as different types of skill sets need to be segmented as departments or subsidiaries to create synergies. “Today, we do not know what will be the structure. That needs deliberation and discussion with all stakeholders under the guidance of the government. The contours have to be thought out properly,” said the executive. The oil expert quoted above seconds that GAIL has little in common with other companies. “GAIL has distinct businesses such as gas contracts, petrochemicals, city gas distribution and pipelines, which are not purely oil industry play,” the expert said.
Another oil industry expert from a consulting firm, who asked not be named as he cannot make company-specific comments, said GAIL is not a natural fit for any firm for such a merger. “It shall probably remain a separate vertical,” he said.
– Saurabh Kumar
