ONGC Current Affairs

CCEA approves selling 51% stake in HPCL to ONGC

 The Cabinet Committee on Economic Affairs (CCEA) has approved sale of government’s 51.11% stake along with management control in HPCL (Hindustan Petroleum) to ONGC. HPCL will continue as PSU after the acquisition.

HPCL will add 23.8 million tonnes of annual oil refining capacity to ONGC’s portfolio, making it the third-largest refiner in the country after Indian Oil Corporation (IOC) and Reliance Industries.

Prior to the merger, HPCL will take over Mangalore Refinery and Petrochemicals Ltd (MRPL) to bring all the refining assets of ONGC under one unit. ONGC currently owns 71.63% of MRPL while HPCL has 16.96% stake in it. MRPL will be the third refinery of HPCL, which already has units at Mumbai and Visakhapatnam

Background

There are only six major PSUs in the oil sector, ONGC and Oil India Ltd being the oil producers, IOC, HPCL and BPCL are in refinery business and GAIL is in midstream gas transportation business. The rest, such as ONGC Videsh, Numaligarh Refinery Ltd, Chennai Petroleum Corp (CPCL) and MRPL are subsidiaries of one of these six PSUs.

Union Finance Minister Arun Jaitley in his 2017-18 Budget had talked about creating an integrated oil behemoth. After that oil companies were asked to give their options. ONGC had evaluated options of acquiring either HPCL or BPCL, the two downstream oil refining and fuel marketing companies. It had found that acquisition of BPCL, country’s second-biggest fuel retailer is too expensive. On the other hand, HPCL’s acquisition easier as its market cap is of Rs 58,485.55 crore and buying government’s entire 51.11% stake would entail an outgo of Rs 29,900 crore.

Comment

Acquisition of HPCL by ONGC will help the government meet 40% of its disinvestment target of raising Rs 72,500 crore in the current fiscal. More deals in the oil sector including Indian Oil Corporation (IOC) buying out explorer Oil India Ltd or Bharat Petroleum Corp Ltd (BPCL) merges with GAIL may be in the offing.

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India, Venezuela sign deals to increase oil production

India and Venezuela have signed an oil production deals worth about 1.45 billion US dollar to increase oil production.

The agreement was signed between Oil and Natural Gas Corporation (ONGC), Venezeulas Petroleos de Venezuela SA (PDVSA), and Venezuela’s consortium Delta Finance BVin Caracas.

The Indo-Venezuelan partnership created in 2009 is expected to double the daily oil production of San Cristobal field from 20,000 to 40,000 barrels of oil.

Comment

The agreement comes amid a severe economic crisis in Venezuela. It is seen as a way to boost oil production, pay off debts, obtain funds from other foreign partners, and increase the country’s oil income.

Venezuelan crisis

Venezuela’s economy relies on oil exports and it accounts for half of the Venezuelan government’s revenues. Recently, it has been severely hit by a drastic fall in oil prices and resulted in the Venezuela’s economic crisis. The inflation rate in Venezuela is out of control leading to hyperinflation like condition resulting in shortages of goods and essential commodities. The inflation rate of Venezuela is highest in the world which is expected to reach 475% by the end of 2016.

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