IOC, ONGC join hands

MUMBAI, JANUARY 25: The first unincorporated joint venture of IndianOil and Oil and Natural Gas Corporation will be formed next month to e...

MUMBAI, JANUARY 25: The first unincorporated joint venture of IndianOil and Oil and Natural Gas Corporation will be formed next month to explore the opportunities in training and consultancy services both here and abroad. SN Jha, director pipelines, IOC will head the operations of the new venture which will have on its board directors both from IOC and ONGC.

A joint venture will be an attractive option as it has the potential of becoming an important profit centre. ONGC has already acknowledged the importance of its centres and with McKinsey has been considering hiving off lucrative operations like drilling. The upstream major also believes that there is enough revenue to be made through each unit by charging independently for services rendered.

IOC, similarly, conducts various advanced programs in specialised fields through the year. The company has excellent infrastructure which gives it an advantage over other institutes. A fusion of skills of both PSUs will create an entity that will attempt to sew up opportunities both in India and countries overseas.

A beginning has already been made for a specific training program in Bangladesh Petroleum Corporation where the joint venture has been shortlised with a handful of other companies. A decision is awaited during the next few months by which time opportunities will have been discovered in other neigbouring countries.

IOC and ONGC, which entered into a ten per cent crossholding deal last year, have also decided to pool efforts in exploration amp; production, refining amp; marketing, petrochemicals and power. The petroleum ministry is, however, of the view that the two oil giants should stick to their core competence of refining and exploration and not diversify into unrelated areas.

quot;The ministry believes that in the current context of boosting domestic crude output, ONGC should concentrate on exploration and production. There is little need to look at other areas at this stage,quot; sources said. The same view apparently holds good for IOC too where reservations have been expressed for its foray into petrochemicals and power.

The two navratnas have, however, reiterated that such diversification is essential if they need to survive in a deregulated environment. Further, as part of their strategy to become an integrated oil company, it only makes sense to build up expertise in key areas both in the upstream and downstream sectors.

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IOC has, incidentally, offered to be the exclusive supplier of key petro-products to ONGC once the oil sector is completely deregulated. These include diesel, lubricants, motor spirit, grease etc which ONGC currently sources from both Bharat Petroleum Corporation and Hindustan Petroleum Corporation in addition to IOC. The upstream major, in particular, uses diesel extensively for its rigs and this alone could translate into an order book worth hundreds of crores of rupees.

A task force has been constituted by both PSUs to examine this proposal and see if it makes economic sense. It will then be forwarded to the ministry of petroleum and natural gas for approval. IOC has also offered to be the exclusive marketeer of all ONGC8217;s products which include crude, kerosene, naptha, liquefied petroleum gas LPG etc, a function that is also carried out by BPCL and HPCL.