The Hindu : New Delhi News : IOC may take over Oil India Limited

Online edition of India's National Newspaper
Saturday, Aug 07, 2004

New Delhi

New Delhi

IOC may take over Oil India Limited

By Sushma Ramchandran

NEW DELHI, AUG. 6. Taking advantage of the synergy between the two companies, the Government is considering a proposal for the oil refining and marketing major, Indian Oil Corporation (IOC), to take over the upstream Oil India Limited (OIL).

The advantage of merging these two public sector companies is said to be the fact that IOC is scouting for a medium size exploration company, while OIL needs a partner to become more competitive in the new liberalised environment of the oil sector.

Highly-placed sources say the proposal is still at a nascent stage, but there is considerable synergy between the two companies. The most significant of these is that IOC already virtually controls four refineries in the north-eastern region where OIL's operations are mainly located. These include the Guwahati and Digboi refineries as well as the Bongaigaon Refinery and Petrochemicals Limited (BRPL) in which it has a 73 per cent equity stake. The fourth refinery in the region, Numaligarh, comes under the Bharat Petroleum Corporation Limited (BPCL). Currently, OIL accounts for only three million tonnes a year of the country's total domestic crude oil output of about 30 million tonnes. The balance production comes from the Oil and Natural Gas Corporation (ONGC). Sources point out that IOC has already announced that it is looking to acquire a medium size exploration and production company in a bid to transform itself into the country's leading upstream and downstream oil companies. At present, IOC is the giant in the oil refining and marketing sector, but has to acquire the expertise to enter the capital-intensive and risky area of exploration and production. The objective would be achieved by taking over this relatively compact company, which has proved extremely efficient in its operations in the north-eastern region.

On the other hand, those opposed to the proposal feel that IOC has already gobbled up a public sector company, IBP, and is now set to acquire yet another small player in the oil sector — probably at a relatively low price. As for OIL, it is not so well known that it was the original pioneer in oil exploration in India in its incarnation as the Burmah Oil Company and the country's first oilfield was Digboi in Assam.

Incidentally, Digboi remains the world's oldest continuously producing oilfield. BOC was nationalised by the Government in the seventies and became OIL. The proposal for IOC takeover of OIL is being considered, sources here say, in the context of the need for the domestic oil industry to restructure itself and remain competitive in a liberalised economy. A decision had been take by the previous Government to allow IOC and ONGC to become the key public sector players in the hydrocarbons sector. For this purpose, it was felt that they should be allowed to enlarge like other global oil companies and have a presence in both the upstream area of exploration and production as well as the downstream area of refining and marketing.

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