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Indian Cabinet Backs Plan To Create State Oil Giant

New Delhi

State refiner Hindustan Petroleum Corp. will be allowed to sell a $4.6 billion stake of itself to India’s largest fossil fuel explorer and producer, according to a new report by Bloomberg.

Crude price volatility in the past three years has seriously hurt the bottom lines of Indian oil firms, which have not been able to compete with multinationals such as Total and Royal Dutch Shell due to scale issues. Oil and National Gas Corp. (ONGC) is expanding its upstream and downstream capacities to become an international fossil fuel player by mitigating short-term oil price risk.

“This deal will make both ONGC and HPCL stronger as the benefits of synergy are huge," ONGC Chairman Dinesh Kumar Sarraf said in a phone interview with Bloomberg on Wednesday. "It will add value to shareholders of both companies."

The Indian cabinet has given its blessing for the multibillion-dollar transaction, which involves a 51.1 percent stake of HPCL, though no official announcement has been made, the report said, citing an anonymous source.

India’s top refiner Indian Oil Corporation (IOC) may also buy out the government’s 66-percent stake in exploration company Oil India in a second deal involving oil firms that is part of India’s plan to create a giant integrated oil company, ET Now news reported on Monday, citing sources.

Related: Iraq Dethrones Saudi Arabia As India’s No.1 Oil Supplier

IOC also became the first Indian company to buy US crude, purchasing 1.6 million barrels of Mars crude earlier this month.

India’s plan to merge some state-held oil enterprises could reduce inefficiencies in the sector, Fitch Ratings said in February, shortly after the initial project was announced. An oil major would also be in a better position to compete for resources globally and withstand oil price volatility. On the downside, Fitch sees the plan as likely reducing competition on the domestic market, and facing challenges in the actual executions of the mergers.

By Zainab Calcuttawala for Oilprice.com

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