The Mega Oil PSUs Merger - An Investors Perspective

"The government plans to form a major oil company by merging some of the existing firms in the oil and gas sector to take on international and domestic players...Possibilities of such restructuring are visible in the oil an gas sector now and we propose to create an integrated public sector oil major that will be able to match the performance of international and domestic private sector oil and gas companies. (It will give them the) capacity to bear higher risks, avail economies of scale, take higher investment decisions and create more value for the stakeholders. India has 18 state-owned oil and gas companies at present. The top six include large exploration and production players, namely, Oil and Natural Gas Corporation (ONGC) and Oil India, and refining and marketing companies, namely, Indian Oil Corporation (IOC), Bharat Petroleum Corporation (BPCL) and Hindustan Petroleum Corporation (HPCL), besides the gas giant Gas Authority of India (GAIL)"

 --Finance Minister, Arun Jaitley

"The entities getting integrated will complement each other in different economic cycles. The nitty-gritties of the process will be decided by the companies. It will not be one company. "-Dharmendra Pradhan, Petroleum Minister

When Arun Jaitley, the country's Finance Minister and one of the trusted lieutenants of Prime Minister Narendra Modi, uttered these words during his budget speech this February, speculations kicked off across various quarters of the industries, pressure groups, lobbying entities, employees' associations, as also among experts and analysts. Even before Jaitley or his colleague in the cabinet, Dharmendra Pradhan, country's Petroleum & Natural Gas Minister, could further clarify on the not-so-exclusive idea of merging oil PSUs, stocks of various oil PSUs listed on the bourses started moving, some upwards and some others downwards. Broking firms started coming up with their 'well-researched' thick reports on oil PSUs' merger and its probable impact on the stocks of government-run entities like Oil and Natural Gas Corporation (ONGC), Hindustan Petroleum Corporation (HPCL), Bharat Petroleum Corporation (BPCL) as most of them started believing that a merger of ONGC with either HPCL or BPCL was going to happen very soon.

As the industry has started considering the Narendra Modi-led government as pro-reforms and also being in favour of creating a petroleum monolith, not too many questions have been asked about how this is going to happen, which of the companies are under active consideration of the government, how the shareholders (read retail investors) of these companies will be taken care of, how much government will have a say in the whole process and will the oil PSUs under consideration be given a complete free hand to decide the entire course of action leading to the creation of an oil behemoth. 

Since February, till the time of filing this report in April, the government did not share much information with the media or the industry bodies, and if sources close to the power corridors in the national capital are to be believed, the oil PSUs too have not been given much information about this plan by Shastri Bhavan or even North Block. Knowing the leadership of this government, one can only be sure of the fact that Jaitley's musings on the subject during his budget speech may not be empty, and the plan might have already got a clearance from the highest office of the government located in the South Block.

But the Prime Minister also so far has remained tight-lipped ever since this has been talked about, and you cannot create an Exxon or British Petroleum in India merging PSUs without a nod from the PMO. But does this kind of silence of the government mean that Jaitley's utterances were premature? Well, not necessarily. Taking into consideration the market sensitivity of the subject as most of the prominent oil PSUs are listed on the bourses, some say that the work on the much-awaited and much-hyped merger has already begun. Pradhan, another trusted man of the Prime Minister, who is at the helm of affairs in the Ministry of Petroleum & Natural Gas, reveals the plan sketchily, thus: "The entities getting integrated will complement each other in different economic cycles. The nitty-gritties of the process will be decided by the companies. It will not be one company. 

It will not be wise to put all eggs in one basket. There will be multiple companies...but all these will be integrated." He does not wish to share any further information on this. As Pradhan still remains grounded and media-savvy, Pradhan is ready to share information related to some other fresh developments in his Ministry but when it comes to the context of merger of oil PSUs, he avoids taking further questions. Being tight-lipped on this issue even reaches up to the office of Niti Ayog Chief Executive Officer (CEO), Amitabh Kant, the man who has already recommended set of actions against a bunch of ailing PSUs in three separate recommendations so far while making the fourth one ready. Kant does not divulge much during a Saturday afternoon interaction at his office near Sansad Marg, when he told this writer, "This will definitely create a massive power while doing business globally. As our Finance Minister Arun Jaitley spoke about it during his budget speech, I strongly believe this kind of a super company in the oil and petroleum sector is much-needed and shortly a decision will be taken on this.". So, will it be a merger of ONGC and HPCL or ONGC and BPCL or any other formula the government has been working on? Faced with the question, the man known for his proximity with the face of the government, Kant denied to offer any further comment on the issue. He just emphasised, "shortly a decision will be taken on this as work has already begun towards the direction."

Going by market speculations and also information collected from various government sources, one can safely believe that ONGC will be one of the two entities to be merged and, among oil marketing companies, the candidature of HPCL and BPCL are being actively considered. So what does the man who is at the helm of ONGC these days has to say? Dinesh K Sarraf, Chairman and Managing Director of the exploration major, seems to be the happiest following the development. "See no doubt India needs an Exxon—rather I will say India needs a couple of Exxon-type companies—giants. The country deserves at least two or three such big integrated companies in this sector competing with each other—it will not only protect the interests of consumers, but also such merged mega entities and investors. Today, there are many companies in this sector. The integration may be both horizontal and vertical. Not just one of it, I will rather say," he said sitting at the comfort of the swanky Deendayal Upadhyay Urja Bhavan in Delhi's Vasant Kunj area. Sarraf is the man to be followed during these days of heightened merger talks. Will it be with HPCL or BPCL? Sarraf ducks the question and picks up the cup of tea. At this time it seems, to break the news of merger, the beat reporters and editors closely following the sectorial developments will have to wait for at least a couple of weeks, if not more.

Let us here also try to understand why the merger is needed and what must have pushed the government to talk about it in the Parliament. This was not the first time someone from the government spoke about working out an appropriate structure for the state-run oil and gas companies. Way back in 1994-95, Captain Satish Sharma, the then Petroleum and Natural Gas Minister at the Centre, sensed the necessity of creating a large oil entity by merging some of the oil PSUs in India. But nothing much happened after Sharma himself subseqently rejected the idea of forming a giant entity. For the next 10 years, not much was talked about on this subject. In 2004, the then Petroleum and Natural Gas Minister, Mani Shankar Aiyar raised the subject again, bringing it out from the back burner. A committee was formed under leadership of V Krishnamurthy but it did not advocate a merger. Though Aiyar was reportedly in favour of creating a giant entity, apparently some of the bosses of the oil PSUs backed out. Twelve years later in 2016, Pradhan, the successor of Aiyar again raised the subject, which finally got a significant space in Jaitley's budget speech.

But why is the merger needed? For two reasons; firstly, a large entity close to the shape and size of one of the top 10 petroleum majors in the world will enjoy more advantages while negotiating prices in the global market; and secondly, if the merged entity led by an exploration major like ONGC bids for assets beyond India, it may have advantages in the bidding process sheerly because of its size. This oil behemoth will have both upstream and downstream advantages and can simply handle the entire process under one roof, right from exploration down to retail sales. "Think of a situation, ONGC explores and brings out oil, refines it, brands it and markets it--is it not easier than one company being engaged in just exploration and another buys the material and refines it before selling it to customers. And both are run by the government--so why do we need multiple companies if we can have all these operations concentrated under one roof," said a former chief executive of an oil PSU. "It will also help us to showcase our petroleum major on the global platform and we will end up enjoying price advantages too while negotiating deals with global players," he justifies further. "The consolidation will provide scale and value chain integration. It is unlikely to disrupt any global order. However, it will strengthen India's ability to avail global acquisition opportunities," Anish De, Partner & Head of Oil &Gas, KPMG. Taking a cue from what De says, we can surely agree with what government wants to do--the behemoth may ensure better and cheaper global acquisition opportunities.
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So what is the size we are talking about at this time considering a merger of ONGC with an OMC such as IOCL, HPCL or BPCL. The biggest single entity can be created by merging HPCL with ONGC and that company can be close to the total asset size of British Petroleum, but much lower than that of Rosneft and even Exxon. If BPCL or IOCL is merged with ONGC, definitely it may create a bigger entity than today's standalone ONGC, but the merged entity will not be anywhere close to the top five oil majors in the world. If all the eight listed oil PSUs are merged into one entity, then the company will have a market value of around US $ 110 billion (at the time of sending this to press), larger than India's Reliance Industries Limited (RIL) pegged at US $ 71 billion, but smaller than British Petroleum, with its market value pegged at US $ 115 billion. If only ONGC and HPCL are merged, then the combined entity may have a market value of US $ 45 billion and a merged entity of ONGC and BPCL may have a market value of US $ 51.13 billion. Will that really help while slogging it out against players like Exxon having a market value of US $ 345 billion. So the big question remains unanswered here--how big will be really big? Rather than merging oil PSUs, should the government focus on hiking their efficiencies, productivity and professional efficiency--a million-dollar question that is now being posed by certain quarters. Former Chairman and Managing Director of ONGC, R S Sharma believes, a merger of ONGC with HPCL will not only create a gigantic petroleum entity but will also fetch upfront cost savings for the company, at least by 10-15 per cent. But then, if the merger happens in line with Jaitley's budget speech, there will be a series of hiccups. "However, a merger would face significant execution challenges, particularly in terms of managing the integration of employees, addressing overcapacity in the merged entity, and winning the backing for the merger from private shareholders," rating agency, Fitch said in a statement recently. India does not have a history of such a mega merger of PSUs, except that of Indian Airlines and Air India that happened years ago. Another issue that may crop up here and can pose a serious threat to the merger plan is related to huge public shareholding in these listed oil PSUs. "That could cause some problems in obtaining approval from the 75 per cent of shareholders that is typically required to approve a merger, particularly if there are concerns over valuation," Fitch had said. Aiyar, a Member of Parliament now and former Petroleum and Natural Gas Minister, believes, "The government must take nimble steps before jumping into a concrete decision. The global oil market fabric has changed drastically in the last few years. The mega oil-gas PSU merger will place India amongst the league of the top oil exporting countries. The newly formed oil and gas Goliath can be a massive challenge for our neighbour China. The cultural differences between the PSUs can make the task of the government harder. The evolved oil behemoth might turn into an invincible entity by further influencing the democratic skeleton of the nation."

But braving all these odds, the government wants its PSUs to go ahead with the merger plan. PSU chiefs believe this may even help the retail investors having interest in the stocks of these PSUs under consideration. Meanwhile, it is reliably learnt that the Petroleum Ministry has already asked the oil PSUs to work out a road map to make the merger a reality--the formula may well be ONGC buying out government's stake in HPCL at a cost of around US $ 4 billion, and in case it goes for a merger with BPCL, it may cost cash-rich ONGC upto US $ 7.5 billion. The merger process is definitely going to be a long-drawn one and investors will have to wait for a period of three to five years for the merger process to get over and to enjoy the rich fruits of the gigantic entity. No wonder, ONGC's Sarraf says, "Investing in ONGC is a long-term one. Stay invested, you will get your returns, even if it takes time."

As the government goes about creating the largest company of the country, keep a watch and stay tuned with us--for more.
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INVESTORS GUIDE

OIL PRICE MOVEMENT 

Currently, the crude oil price is trading at USD 50 per barrel. Though, the price of crude increased from its historic lows of USD 27 per barrel, going forward, the oil prices will trade in a narrow band width. The reason behind lower oil price is output cut from OPEC as well as non-OPEC members. There is enough oil supply to cater to the global demand. The lower oil prices lead to vertical integration due to the inability of oil companies to market their oil during times of surplus crude oil. Since oil prices are extremely volatile, it is claimed that integrated operations give better earnings stability.

PRESENT GLOBAL SCENARIO 

Indian oil industry is going to experience a massive integration, as PSUs will be merged and will form a bigger entity. Considering global presence, it is a fact that mergers and acquisitions have been the norm in the oil industry. Most of the global oil giants, including Exxon Mobil, ConocoPhillips, Royal Dutch Shell, BP, Grazprom, Rosneft, Sinopec and China Petroleum are all results of mergers. Out of these majority are currently state owned, except a few big ones in the US and Europe.

China and Russia moved towards creating a consolidated oil and gas giant in the 1990s, but they gradually backtracked. Nevertheless, both countries have at least half a dozen large oil and gas companies.

If we consider the case of Venezuela's experiment of a single State-owned entity, we learn that the experiment has been a costly failure, as the State monopoly has actually started seeing a drop in production.

Interestingly, the reason behind countries not creating a single entity is efficiency. Monopoly always becomes inefficient over a period of time, and leads to poor productivity. Even within the State sector, competition between companies is universally considered to be a better option.

The NDA government's rationale behind the proposal to combine oil PSUs into one major entity is that it would give them the financial ability to bid for major exploration and production assets in India and overseas.

Since India is keen to acquire oil assets in international regions for energy security,it certainly needs to have globally competitive oil entities that can compete with foreign giants.

India's oil products' demand increased by 8.8 per cent to 192.80 million MT in 2016 as compared to the previous year. The combined entity will have an upper hand to compete globally with BP Global, Rosneft and Shell, among others, as well as in the domestic market in India with Reliance Industries, Cairn India and Essar Oil.

The government's decision to build emergency storage sites in underground caverns in the country is aimed at hedging against energy security risks. Its two new planned reserve facilities along with the existing three reserves will take up the country's strategic reserve capacity to 15.33 million metric tonnes. India currently meets more than 80 per cent of its energy requirements through imports. So the government has now set a goal of reducing this import dependence to 67 per cent by 2020.

PROPOSED MERGED ENTITIES' FINANCIALS 

The government's plan to merge 11 government oil companies would not only give these companies capacity to bear higher risks, but will also benefit economies of scale, and help take higher investment decisions, giving much stronger bargaining power while dealing with suppliers, and will provide a greater financial clout to secure the oil resources.

Moreover, at the same time, the conglomerate would create more value for their shareholders, and bring in the much-needed transparency. Postmerger, the bigger entity would be able to compete with domestic private sector oil and gas companies and with international players.

Government's move to create an ‘oil major' would enable India, world's third largest oil consumer, to meet its energy requirements to some extent. It will also help mitigate the rising oil prices in India, and at the same it would bring down the price of other commodities too.

The list of proposed companies to be merged include Balmer Lawrie & Company, Bharat Petroleum Corporation, Biecco Lawrie Company, Chennai Petroleum Corporation, Engineers India, Gas Authority of India, Hindustan Petroleum Corporation, Indian Oil Corporation, Numaligarh Refinery, Oil India and Oil & Natural Gas Corporation.

The big oil firm will have market capitalisation of Rs.678123 crore. The consolidated entity could compete with rivals like Russia's Rosneft (Rs.358380 crore) and UK's BP Plc (Rs.729792 crore) in terms of market capitalisation and financial power.

Integrated firm's total assets size will grow to Rs.625142 crore. At the same time, liabilities of these companies will be taken forward or settled as per cash available with them. Now, we are not in a position to comment on the liability side of these companies due to lack of clarity from the government. The process of merging the entities is prolonged, and the criteria will be clarified gradually in the time to come.

Post-merger, the top line of the company will be more than Rs.9.5 lakh crore, operating profit of more than Rs.1 lakh crore and bottom line of around Rs.44,311 crore. The operating profit margin of the merged entity will be 12.07 per cent as well as it will attain a net profit margin of 4.62 per cent.
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Investors' point of view

It is very premature to predict what will be exchange ratio for the companies which are going to be merged into the integrated massive oil firm. Government is working towards consolidation of oil PSUs. How they will proceed for integration will be clarified in near future. The merchant bankers and oil companies will discuss and fix the exchange ratios. The cut-off date for valuating these oil firms will also be notified in future. We at DSIJ would guide reader investors that, those investors who have invested in these firms should wait and watch till further clarification comes from the government and the respective oil companies.

Integration of oil companies into a single strong company will give an extra-advantage to compete with global firms. Being a big firm it will be in a position to concentrate on a greater number of oil fields globally and also to acquire companies across the globe. Going forward, investors may be benefitted as the oil sector prepares for a mega merger.

LEADER SPEAK

Modi govt should take nimble steps before finalising the merger

Mani Shankar Aiyar

Way back in 2004, the then Petroleum and Natural Gas Minister, Mani Shankar Aiyar had thought of restructuring the oil PSUs--but later the idea did not get materialise. Twelve years since Aiyar's idea, this time his political opponent, Arun Jaitley raised the same context and even mentioned it in his budget speech. In an exclusive interaction with Subhajit Bhattacharya, Aiyar speaks on various aspects of the possible merger. Excerpts:

Being the former Union Cabinet Minister of Petroleum and Natural Gas, how do you interpret the present climate of the global oil and gas market? 

The conditions have changed with the passing time. The previous hurdles have been bulldozed with technological advancements such as "fracking" and by the timely waking of shale oil and gas. Soaring oil prices have been tamed with the help of technology and apt measures undertaken by some of the major oil-producing nations such as Saudi Arabia. China is the biggest threat to the domestic oil market. Rather than locking horns with the dragon economy, we must resort to oil diplomacy, which might bring in peace and stability in the entire oil and gas market flanking the South East Asia region.

Both the regional Superpowers must open a robust diplomatic channel to reduce the competition in the region, which I believe is filling the treasuries of the western countries.

Mega oil and gas merger was proposed earlier, but it never became a reality. What are the challenges that you think have stalled the birth of the oil behemoth? 

The previous governments have mooted this idea of merging the oil and gas PSUs into a single large entity, but it never came into being because of multiple reasons. During my tenure, V Krishnamurthy, Vijay Kelkar and G V Ramakrishna were appointed to examine the overall situation so that in the international market, we could raise huge capital, and it could help us in securing the rights for oil worldwide. The oil and gas PSUs bear the traits of different cultures.Wherein the Indian Oil Corporation and ONGC were conceived by the government of India; and Hindustan Petroleum and Bharat Petroleum were created by foreign companies, and later nationalised by Indira Gandhi after the war of 1965. This characteristic difference is a major roadblock in the merger I believe. Apart from this, there is always a fear of creation of Frankenstein, which could later pose a threat to the democratic skeleton of the country. Though the scene has changed, the government still must take nimble steps before jumping into the climax.

What steps government must initiate before finalising this proposal? 

The government should take nimble steps and must consult experts before taking a final call on this issue. Though the scene has changed in the last 12 years, but still we must stay alert by keeping in mind the present geopolitical scenario of the South East Asian region.

Indian oil and gas companies must try to induct technology and carve out valuable natural resources such as gas hydrates, which could change the face of the Indian economy as shale oil transformed the US economy.

DSIJ EXCLUSIVE

India needs not just one Exxon, but at least two— merger to benefit investors too

Dinesh K Sarraf, Chairman and Managing Director

At the fifth floor corner office of Dinesh K Sarraf, Chairman and Managing Director of India's most valuable public sector enterprise, Oil and Natural Gas Corporation Limited (ONGC), on a Friday afternoon, popular face of a business news channel was beaming on the huge LCD television talking about much-talked about merger of oil PSUs in India. In front of me, choices of crispy cookies have been just kept with a cup of freshly-brewed black tea. Outside this swanky new headquarters of ONGC, the summer approaches steadily in the national capital. The news anchor now takes a breath courtesy commercial break.

Time to catch up with the tea and cookies and also the man at the helm of affairs—enters Sarraf, much sought after by the media across the nation these days, ever since the country's Finance Minister, Arun Jaitley talked about creating a mega oil PSU in his last Budget speech. Serving ONGC since 1991, Sarraf known for his inclination towards adopting best operational and cost practices, asks me to switch off the recorder. He picks up his cup of tea and we started talking about his company, investors' interests, possible mega merger, GSPC deal and also my stories as a petroleum beat reporter long back. An exclusive conversation with Joydeep R. Ray

HOW DO YOU JUSTIFY THE GSPC DEAL AND SUCH A HUGE CAPITAL INVESTMENT? WILL IT WORK TOWARDS GOOD RETURNS FOR ONGC SHARE-HOLDERS?

This is one of the best opportunities we had in our hand. There are two ways to value this opportunity firstly, considering future outflow and inflow and secondly, strategic benefits for integrating with other operations of the company. ONGC's acquisition of GSPC's block ranks excellent on both.

We have already declared US $ 5 billion investments for cluster-II of KG basin and please note here, if some difficulty happens to cluster-II evacuation system, we can use the GSPC evacuation system in place. Further, in 98/2 block, there is cluster-I where we have this long-standing disputes with Reliance Industries Limited and we also may not be able to justify capex for a new infrastructure as balance gas reserves may be very small. But then if you look at it, you will find that GSPC has its own full infrastructure already in place here. It has costed them US $ 1.5 billion which we will be able to use without spending any money for development of this cluster I reserves. In addition, we also get the underground reserve in GSPC's block as well. We are all looking forward to witness, what shall be a momentous occasion for ONGC when the first gas flows from 98/2 in 2019. Development of this Block is ONGC's first major foray in deep waters and is all set to considerably reduce hydrocarbon import dependence and help the nation to move closer to being a gas based economy. GSPC asset acquisition will add tremendous value to ONGC share-holders.

Also through the acquisition of GSPC's 80 per cent stake in KG-OSN-2001/3 block in the shallow waters of KG basin, ONGC can integrate development of its nearby HP-HT discoveries. ONGC is geared up to work hard to exploit the resources with HP-HT, high CO2, high H2S, low porosity and permeability.

YOU ARE PLANNING TO RAISE FUNDS FOR OPAL—HOW IS THE PROJECT DOING NOW?

The idea of raising funds for OPaL's Gujarat project is to fill the gap in equity condition. The US $ 4+ billion petrochemical plant has already emerged out of the project phase and dual feed cracker unit and all the downstream units of OPal has already been commissioned. OPaL will have India's biggest dual feed cracker, which is also one of the biggest in Asia. At Dahej, the world's first LNG-based C2-C3 plant which will supply the feedstock to OPaL commenced operations two years back during May 2015.

ONGC HAS BEEN ASKING FOR GAS PRICE REVISION AND ALREADY REQUESTED THE GOVERNMENT TO WORK TOWARDS IT. WHAT IS THE STATUS AT THIS TIME? 

See, the gas price presently is very low and it does not cover even the cost of production. It is tough to sustain with the price now. We have asked the government to reconsider the pricing formula. Actually, gas pricing and marketing needs to be deregulated as the market forces decide the gas pricing.

WHAT WILL YOU SAY TO THE RETAIL INVESTORS HOLDING ONGC SHARES? HOW DOES THE FUTURE EVOLVE FOR THEM? 

Our share-holders are mostly long-term investors in the markets. ONGC is a long-term stock due to its nature of business. The return to investment will start coming now over a period of few years. Stay invested, I will tell them as ONGC has taken several initiatives to accelerate exploration and production activities. We are also conservative with it comes to taking capex decision. We very much keep in mind interests of the retail investors whenever we take any major decision that may impact their interests. I will say again, stay invested—things will look better from here.

NOW THE BIG QUESTION—OUR FM HAD TALKED ABOUT CREATING A MEGA OIL & GAS ENTITY MERGING PETROLEUM PSUS. THE MARKET BUZZ IS ONGC MAY SOON GET MERGED WITH AN OMC, SAY HPCL. WHAT IS THE GROUND ZERO SITUATION? 

See no doubt India needs an Exxon—rather I will say India needs a couple of Exxon type companies, giants. The country deserves at least two or three such big integrated companies in this sector competing with each other —it will not only protect the interests of consumers, but also such merged mega entities and investors. Today, there are many companies in this sector. The integration may be both horizontal and vertical. Not just one of it, I will rather say. This will take care of upstream volatility and downstream volatility vis-a-vis crude prices—this will also help the investors. I can't really comment on ONGC's preference towards any particular OMC in terms of a merger. Here, companies through their respective boards would decide and Government's role would only be facilitation if Govt. equity is involved.

We are all looking forward to witness, what shall be a momentous occasion for ONGC when the first gas flows from 98/2 in 2019. Development of this Block is ONGC's first foray in deep waters and is all set to considerably reduce hydrocarbon import dependence and help the nation to move closer to being a gas based economy.
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Oil PSUs merger decision will be taken shortly

Amitabh Kant CEO, Niti Ayog

During the last two-and-half years, we have opened up opportunities in almost every sector of the economy, other than multi-brand retail. If there is any other sector you think to be opened up, you let me know, otherwise all the sectors have been opened. Secondly, the FDI regime has been well-promoted and marketed across the world, particularly by the prime minister during his visits abroad.

The perception is that India will do well, several parameters are doing well, so investors have continued to invest in India. Investors from across the world have come to invest here.

FDI: 

The FDI is also a function of the performance of the investment which have been made in India. They should continue to do well and that should be the model for further awareness. Secondly, we must make India a very easy and simple destination.

Our focus should be on ease of doing business and there has to be continued predictability and consistency and clarity of policies.

PSU STAKE SALE: 

There are two things here. Niti Ayog was asked to recommend action on loss-making and sick PSUs—we submitted a report of the 26 loss-making PSUs. We are also asked to function as the Disinvestment Commission and make recommendations for strategic disinvestment inpublic sector enterprises. We have submitted three reports and have made recommendations for disinvestment in 45 PSUs. We are now considering coming up with the fourth list of such PSUs where disinvestments need to be done.

OIL PSUS' MERGER 

This was an announcement during the Budget. Detail study on integration of public sector enterprises in the oil sector is being examined and a final decision on this will be taken shortly.

DIGITAL INDIA 

Our strategy has been that there are 450 million smartphones on which you can do Bhim, you can do wallets, you can do internet banking. There are another 400 million GSM phones which can use *99# services. Yet another 300 million people don't have phones. For them, we have decided to let them use ration shops to use Aadhar-enabled payments. This will help Aadhar-enabled payment systems to grow—cash in, cash out, in ration shop dealers, as it is happening in Krishna and Godavari districts. I think it will take another year to spread across the country. A change of mindset is also required in this respect.

RURAL INDIA 

Wherever pilot projects are done, we get good feedback. People in rural India are picking up Aadhar-enabled payment systems much faster than people in urban areas. People have accepted it well in rural areas—faster than the urban population. We have already got 1.1 billion people with Aadhar and linking up Aadhar with mobile payments is a simple and easy technology. It is far easier than using debit and credit cards.

MAKE IN INDIA 

We should continue to develop FDI in India—we should continue to grow at a higher pace and we should continue to come up with administrative and governance reforms in India. We need to make India a nation with clear policies. Clarity of policies will make India a preferred destination for doing business.

Consolidation of oil PSUs will provide scale and value chain integration

Anish De, Partner and Head of Oil and Gas, KPMG in India

How do you think the consolidation of public sector oil companies will empower or disrupt India's position in the global oil and gas market?

The consolidation will provide scale and value chain integration. It is unlikely to disrupt any global order. However it will strengthen India's ability to avail of global acquisition opportunities.

In your opinion, what impact will the public sector oil and gas companies' mergers have on the companies' stakeholders? 

If the merger goes well and the synergies are realised, there will be positive value for the shareholders. However, at the level of the organisations and internal stakeholders, there will be a process of integration and adjustments which will potentially be fairly demanding.

What are the key risks and considerations coming with the consolidation of public sector oil companies'? 

The key risks are that the efficiency benefits of the consolidation are not realised because of integration challenges. Simultaneously there is a risk that the companies will get focused internally in the integration process and take their eyes off the market which is witnessing massive disruptions.

What are the challenges that are likely ahead of consolidation in oil & gas sector? 

The main issue is integration of cultures. All the companies have different histories and lineage, and sometimes in a PSU environment, those factors are rather difficult to align.

Can you throw some light on impact of oil PSUs' mergers on government's expenditure or subsidies, etc? 

There is no direct impact on subsidies that can be foreseen. However any stake sale by the government to a PSU in the course of the merger will benefit government finances.