India to Consolidate Public Sector Companies, Including Oil & Gas Industry
May 25, 2020
The Indian government’s planned reforms to reconfigure or privatize central public sector enterprises (CPSEs) aims to minimize burdensome administrative costs and the country’s deficit overall. According to the Ministry of Heavy Industries’ 2018-2019 Public Enterprises Survey, there are 43 CPSEs in technical consultancy services, 36 in heavy/medium engineering, and 23 in transportation and logistics. In that context, on May 17, 2020, Finance Minister Nirmala Sitharaman announced that the government would privatize most “non-core” public sector enterprises.
This move, slated before the COVID-19 pandemic yielded a national lockdown, aligns with the government’s campaign to “disinvest” in India’s public sector units, including mergers and privatizations. A major example of this was the 2018 merger between ONGC (Oil and Natural Gas Corporation) and HPCL (Hindustan Petroleum Corp.), after ONGC bought the government’s 51.1 percent stake in HPCL for $4.9 billion USD.
In terms of privatization, major developments are already underway in government-owned Indian Railways, Air India, and oil and gas companies such as Bharat Petroleum (BPCL). The government approved a proposal to sell its 53.3 percent stake in BPCL in November 2019.
The Finance Minister’s May 17 announcement left the door open for a limited number of CPSEs classified as “strategic” to remain public, while others will be bought under holding companies, merged, or privatized. Sources familiar with these developments say that oil and gas companies may be classified as ‘strategic,’ but that classification would not prevent further mergers and sales to restrict the number of public enterprises in the sector.
In this shifting environment, the Indian oil and gas sector could likely be transformed, affecting upstream oil producers (i.e. Oil India and ONGC); downstream oil refiners (i.e. BPCL, HPCL, and Indian Oil Corp.); gas transporters (i.e. GAIL); and engineering firms (i.e. Engineers India Limited)—to name a few.
Another noteworthy development in this context is U.S.-India energy cooperation. Following President Trump’s February 2020 visit to India, energy ties strengthened between the two countries, including an agreement between ExxonMobil and Indian Oil Corp. Relatedly, India seeks to decrease its dependence on Middle East crude oil.
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