Friday, August 26 2005 16:18 Hrs (IST) - World Time -

New Delhi: Within weeks of a high-level panel on recast of public sector oil firms opposing mergers for creation of oil behemoths, Petroleum Minister Mani Shankar Aiyar has announced constitution of another committee to have a re-look at the issue of integration of oil Public Sector Units (PSUs).

Addressing a meeting of the Parliamentary Consultative Committee yesterday (Aug 25, 2005) evening, Aiyar said Prime Minister Manmohan Singh had cleared setting up of a Standing Advisory Committee for integrating/restructuring of oil PSUs.

Though he did not elaborate on the constituents of the committee, official sources said Aiyar told lawmakers that the report of the Advisory Committee on Synergy in Energy, headed by V Krishnamurthy, would be the starting point of the new panel.

The Krishnamurthy Committee, which submitted its report on July 11, had opined that mergers and consolidations worldwide occurred during times of low oil prices and were instruments of eliminating excess workforce and duplicate facilities.

With oil ruling at historic highs and reduction in manpower not feasible in Indian context, mergers were ruled out by the committee.

Aiyar had created the earlier panel to suggest for consolidation of oil PSUs, possibly into one or two mega corporations, so as to cut down 'destructive' competition.

The idea mooted in January was to merge refiners Bharat Petroleum Corp Limited (BPCL) and Hindustan Petroleum Corp (HPCL) with exploration major Oil and Natural Gas Corp (ONGC) on the one hand and OIL with Indian Oil Corp (IOC) on the other to create two oil behemoths.

However, with the Krishnamurthy Committee ruling out such a merger, the Petroleum Minister wants to have the idea revisited, official sources said.

Aiyar hs taken critical view of state-run firms

Sources said Aiyar has taken critical view of state-run firms competing with each other for the same fuel retail market share or space on the overseas oil and gas exploration map.

He wants the oil firms to integrate operations so as to achieve economies of scale and tied over business cycles. His concept being that in times of high crude oil prices, like the ones being witnessed now, oil production business can offset losses that may arise from retailing fuel at below cost.

His concept is particularly relevant in the present times when high crude oil prices have brought windfall profits to exploration firm ONGC, but has pushed retailers IOC, BPCL and HPCL into red on not being able to pass on the complete hike in cost of raw material (crude oil) to consumers.

"Aiyar feels that presently upstream firms like ONGC are subsidising downstream retailers by way of discounts and options should be explored if this ad hoc mechanism can become a permanent feature," a source said.

The Petroleum Minister, in his address to the Parliamentary Standing Committee, did not elaborate on the mandate for the panel or as to when it would be constituted.