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ONGC may merge OVL with itself instead of hiving it off

Anupama Airy
From The Financial Express, India
October 7, 2005
link to this article.

Oil and Natural Gas Corporation (ONGC) may consider merging ONGC Videsh Limited (OVL) with itself if the petroleum ministry pushes for hiving OVL into a separate entity, to be jointly owned by oil and gas PSUs.
FE had on October 3 reported that the petroleum ministry was working on a proposal to create a new entity for acquiring oil and gas acreages abroad.

Citing OVL's failures to buy into producing properties, the petroleum ministry's international division had mooted the idea of hiving OVL into a single special purpose delivery vehicle independent of ONGC.

"Consolidation would be the logical step if the government insists on hiving off OVL," said a senior ONGC official, adding ONGC has lent around Rs 15,000 crore free of interest to OVL. "No party would even look at OVL without ONGC's balance sheet. Had OVL borrowed Rs 15,000 crore from the market, it would have had to pay Rs 900 crore (at 6% per annum) in interest alone every year," he said.

The official said OVL was currently operating as a separate company because of the special empowered committee of secretaries route available to it for speedy clearance of its proposals.

Taking a cue from the China model and other oil deficit nations like the United State, France, Italy and Japan - which have huge mega-merged oil companies - the petroleum ministry feels India should look at big-ticket acquisitions of oil and gas properties abroad. At present, the focus seems to be on picking up small stakes as portfolio investors, they said.

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