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Q. Oil company merger: Comment on the issue of public sector oil company mergers.
Mar 23, 2017 Related to : GS Paper-3

Ans :

Introduction-

Recently Indian Oil Corporation chairman B Ashok has expressed his support for the government’s decision to create integrated domestic oil companies. The government moving in a step announced in Union Budget 2017-18 to create an integrated public sector oil behemoth, the government is working on a plan to either merge HPCL or BPCL with oil exploration major ONGC. 

Analysis-

  • The proposed move will bring synergy in the operations of state-run oil companies and it can shore up the innovations that are required for effective functioning of state-run oil firms. It will rationalise the expenditures of these companies and increases competitiveness of these firms by better utilisation of infrastructure and logistics for our vast oil economy.
  • It will boost productivity, efficiency and innovativeness across oil segments in the national interest and a single behemoth entity may serve this interest better than current fragmented entities.
  • Though, the proposed move has many benefits, but many observers believes that merger of several public sector oil companies to form one behemoth is a terrible idea. 
  • To some extent, creating big conglomerate may synergies the operations and shores up innovations, but the move to aggrandize monopoly in the hugely voluminous oil sector is more likely to lead to inefficiencies and scuttle productivity gains across the board. India being far more dependent on oil products, complete dependent on a single conglomerate is not good idea and poses severe risk in case of any economic misadventure. 

What can be done?-

  • Instead of creating a single conglomerate, the present structure of state-owned companies should be strengthened through policy changes and management and structural improvements.
  • Instead of creating a single monolithic structure, a better option is to have two or three large entities, which can not only compete in the global market but also protect risks.

Conclusion-

Merger of several oil firms may lead to quicker decision making and better utilisation of infrastructure, but creating a monolith structure poses severe threat for India. Hence government should consider of having two or three large entities, which not only increases the efficiencies of oil firms but also gives protection from possible risks.


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