To ensure that the transfer of State-owned oil major HPCL’s promoter stake to ONGC does not breach any norms on anti-competitive practices, the government has exempted the merger of oil and gas PSUs from the purview of competition watchdog CCI.
Sources indicated that the Centre intends to complete the transfer of HPCL’s stake to oil giant ONGC early next year.
Earlier, Neeraj Kumar Gupta, Secretary, Department of Investment and Public Asset Management, had said that the deal, which is part of the disinvestment line-up, is on track.
“The Central Government exempts all cases of combinations under Section 5 of the Act involving the Central Public Sector Enterprises (CPSEs) operating in the Oil and Gas Sectors under the Petroleum Act, 1934 … along with their wholly or partly owned subsidiaries operating in the Oil and Gas Sectors, from the application of the provisions of sections 5 and 6 of the Act, for a period of five years,” according to a notification by the Ministry of Corporate Affairs.
The relaxation will be available for a period of five years. A similar mechanism has been adopted for public sector banks, for a period of 10 years.
Originally proposed by Finance Minister Arun Jaitley in Budget 2017-18, the HPCL-ONGC deal was approved by the Cabinet in July.
According to the plan, ONGC will acquire a 51.11 per cent stake in HPCL, in line with the government’s objective to create an integrated energy major with businesses spread across the hydrocarbon value chain.
Market distortion fears
However, experts have questioned the exemption and said it can lead to market distortions.
Noting that Section 54(a) is an exceptional power vested with the Executive and is intended to be used sparingly, Manas Kumar Chaudhuri, Partner, Khaitan & Co, said: “Big-ticket mergers such as those of PSU banks and PSU OMCs have been exempted from the CCI ... Statutory problems, which may arise out of these exemptions, cannot be ruled out.”
R Prasad, former Member of CCI, concurred and said mergers such as this create monopolies. “Any monopoly, whether in the public or private sector, is not good,” he stressed.