MERGER: ONGC AND IOC GET ENGAGED

Vol 3, PW 1 (03 Feb 99) People & Policy
     

Indias two largest oil companies are getting engaged.

The announcement on 21 January of a "Strategic Alliance" between ONGC (Indias biggest explorer) and IOC (its biggest refiner) stopped well short of outright merger, but included enough indications to suggest that in future the two companies will work closely together - at home and abroad. The idea to streamline activities was first mooted by Vijay Kelkar, a former oil secretary, in a Vasant J Sheth Memorial lecture back in December 1997.

Then, mergers were not as fashionable as today. Kelkar is today finance secretary, and the hidden hand behind the new order.

Only with his blessing has the "engagement" gone through. In real terms, what does it mean A summary:- *IOC and ONGC will nominate a Director to each others board.

Their job will be to synchronise activities to ensure no overlap. *Each company will enjoy "First Right Of Refusal" status on offers of equity participation in the others projects.

*IOC and ONGC will make joint bids for some of the 48 exploration concessions under NELP. Overseas, they will work together to acquire acreage in third countries: Iran and the former Soviet Union.

*All joint projects are to be undertaken through newly set up private companies where IOC and ONGC retain a minimum 50% stake and the balance is held by others. For Bikash Bora, Chairman, ONGC, the advantages of such an alliance are clear: "We see it as a base to diversify overseas".

Domestically, too, the alliance has begun to take concrete shape. IOC is offering ONGC a 24% stake in a 301 MW power project at Panipat, Haryana.

IOC and Marubeni already have a 26% stake in the project. The question: Does ONGC really intend to diversify away from its core