The Narendra Modi-government’s plan to build a mega oil PSU of global scale had got a shot in the arm earlier last month with the Union Cabinet clearing the proposed acquisition of HPCL by ONGC. The sale of the 51.1% stake in state-run refining and marketing company HPCL, held by the government, to oil exploration and production firm ONGC could fetch the government about Rs 29,000 crore at current market prices. However, there is no clarity yet on the price that ONGC will pay for the acquisition.

The government seems to have opted for acquisition route for combining the two companies, making HPCL a subsidiary of ONGC rather than merging the two. HPCL will retain its brand post merger. However, minority shareholders in HPCL may not gain or lose much from the deal, apart from the gain or loss in the share prices, as the deal will be exempt from the mandatory open offer required in cases of acquisition of more than 26% equity stake. The government will form a committee to frame the modalities and oversee the proposed merger.

The Cabinet had also said that the merger of ONGC’s existing unit — the smaller refiner MRPL (Mangalore Refinery and Petrochemicals Ltd) is expected at later stages. Experts have earlier pointed out that since MRPL and HPCL are essentially in the same business, it doesn’t make sense for ONGC to keep two separate companies under its fold. The Cabinet has said that the integration of other oil companies will soon be taken up after the HPCL’s takeover by ONGC. The government is reportedly already considering combining the behemoth refiner and marketer Indian Oil Corp and smaller oil exploration firm Oil India Ltd, even as the ONGC-HPCL deal was yet to be finalised.

The government is keen to form vertically integrated oil companies which would be better able to absorb the fluctuations in the global crude oil prices, as when the exploration unit suffers from falling prices, the refining unit benefits, and vice versa. Earlier in February, Finance Minister Arun Jaitley proposed setting up an integrated oil PSU (public sector undertaking) by merging companies with synergy in order to match the scale of the global oil giants.