No merger of oil PSUs, says Synergy Panel

According to a member of the committee, the idea to transfer the government holding to the trust is two fold. While the PSU nature of the oil firms will be intact, the oil PSUs will also be at arm lengths from government interference. This in essence boils down to more autonomy for the oil PSUs.

The committee has also recommended revamping the existing framework of supervision and overview for the oil PSUs by agencies like CAG, CVC and CBI by setting up pre-investigation board with former PSUs chiefs, government and private sector representatives. It has also suggested empowering directorate general of hydrocarbons (DGH) as an autonomous body with a separate cadre of experts and access to funds.

The Panel is also of the view that the number of reviews by the ministry of the oil PSUs in a year should be limited. There is also a need to limit the number of government directors on the boards of these PSUs while allowing more freedom to the oil PSUs in case of amount of investment in JVs, subsidiaries.

The committee, headed by V. Krishnamurthy, has also suggested that there is a need for an integrated energy policy. To facilitate this, the panel has suggested setting up of Cabinet Committee on Energy under the Prime Minister and setting up of an energy ministry. Already the government is considering a move to bifurcate the petroleum ministry and setting up of a department of energy.

The petroleum ministry had earlier set up the committee to look into possible mergers and consolidations of the oil PSUs. The ministry had felt that the oil PSUs often landed up competing with each other, especially in acquisition of foreign oil assets. The idea was to minimise overlapping of interests and curtail destructive competition by merging smaller companies like BPCL, HPCL in ONGC and OIL in IOC to create two behemoths capable of facing international competition.

However, while recommending that there is no need to merge the oil PSUs, the panel has said for overseas venture, a new parallel entity to OVL can be set up by OIL. To avoid intense competition in overseas bidding, the committee has recommended that the government should fix a limit related to the production capacity of more than 2 mts of oil equivalent for OVL, below which the new entity can be permitted to bid.

The Panel has also recommended that the transmission and supply services of the dominant gas company, GAIL India Ltd, needs to be separated. “It is necessary to unbundle the supply and transport services of GAIL to facilitate competition and to reduce conflict among entities,” the committee said.

“Therefore, separate entities should be formed for inter-state transmission as an activity and other activities like supply to fertilisers, power etc,” the Panel added.

Among other issues, the Panel has also called for increasing the storage capacity of the proposed strategic reserve from 5million tonnes to 10 million tonnes.

Key Recommendations

• Mergers of oil PSUs not advisable

• Set up an integrated energy policy, cabinet committee on energy headed by PM, and explore possibility of a unified energy ministry

• Transfer government holding in oil PSUs to a trust, which will help oil firms retain PSU nature while allowing more autonomy

• Set up a pre-investigation board to examine cases before referring them to agencies like CVC, CBI

• Limit number of reviews by ministry and number of government directors on boards of oil PSUs

• Strengthen DGH by making it autonomous and giving it access to funds

• Create a new entity by OIL to bid for overseas ventures. Fix a limit of over 2 million tonnes of oil equivalent for OVL to bid. For amounts less than 2 million tonnes, new entity can compete

• Unbundle transmission and supply services of GAIL

• Increase ‘proposed’ crude strategic reserve from 5 million tonnes to 10 million tonnes