New Delhi: Hindustan Petroleum Corp Ltd (HPCL) will become India's third largest oil refiner after state-owned ONGC acquires government's entire 51.11 per cent stake, Oil Minister Dharmendra Pradhan said on Monday.
HPCL, under which all downstream refining units of ONGC will be accumulated post-merger, will continue to remain a public sector undertaking (PSU) with separate brand and board.
Making a suo motu statement in the Lok Sabha, Pradhan said the Cabinet Committee on Economic Affairs (CCEA) had on July 19 given 'in-principle' approval for strategic sale of the government's existing 51.11 per cent stake in HPCl to Oil and Natural Gas Corp (ONGC) along with transfer of management control.
"The proposed acquisition in the oil sector, will create a vertically integrated public sector oil major having presence across the entire value chain. This will give ONGC an enhanced capacity to bear higher risks, take higher investment decisions and to neutralise the impact of global crude oil price volatility," he said.
The acquisition of HPCL by ONGC will result in significant synergies in terms of optimisation of logistics costs, R&D activities, economies of scale of purchase of crude oil and optimisation in refinery operations.
"For overseeing this transaction, CCEA approved setting up of an alternative mechanism, headed by Finance Minister, which will help in taking quick decision with regard to the timing, price, terms and conditions and other related issues," he said.
After the acquisition by ONGC, HPCL will continue to be a central government public sector enterprise. "It can still maintain its cultural uniqueness and brand identity, distinct from ONGC," he said.
Talking to reporters outside Parliament House, Pradhan said the transaction is targeted to be completed within the current fiscal year ending March 31, 2018.
"HPCL currently has 24.8 million tonnes per annum of refining capacity. Mangalore Refinery and Petrochemicals Ltd (MRPL) — a subsidiary of ONGC, has 15.1 million tonnes. After this deal, the entire refining capacity of ONGC Group will come under HPCL.
"So, HPCL will have 40 million tonnes of refining capacity and will be third largest in the country after Indian Oil Corp (IOC) which has 69.2 million tonnes capacity and Reliance Industries which has 62 million tonnes," he said.
Pradhan said MRPL will merge into HPCL but did not indicate timelines. "HPCL already has about 17 per cent in MRPL. So there already is synergy there," he said.
In future, HPCL plans to set up a 9 million tonne unit in Rajasthan and plans the expansion of its Vishakhapatnam refinery in Andhra Pradesh. This will take the company to 50 million tonnes-plus category.
For ONGC, the deal will bring to it assurance of market as well as greater capability to bid for not just oil and gas fields but also refinery and downstream projects abroad, he said.
"Previously, the issue was about supply security but worldover market security is being sought," he said adding HPCL controls one-fourth of fuel retailing market in India.
HPCL as a brand with a separate board and its own identity will continue, he said.