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IOC, ONGC and GAIL in early merger talks

India's state-run oil firms in the exploration, refining and gas marketing sectors are in talks for a mega-merger, but the proposal is at a preliminary stage, officials said on Wednesday.

Refining firm Indian Oil Corp, exploration company Oil and Natural Gas Corp and the Gas Authority of India, which markets gas, could merge to create a company that can compete with global majors, officials said.

"There have been some very preliminary discussions, but there is no formal move to merge these companies," a petroleum ministry official, who did not want to be named, told Reuters.

IOC and ONGC forged a strategic alliance two years ago, bought 10 per cent of government-held equity in each other and agreed to nominate directors in each other's boards.

The government discussed a merger at the time but decided against it, officials said.

ONGC is India's largest oil producer with an output of about 25 million tonnes a year. IOC has an annual refining capacity of 47.5 million tonnes made up of 38.15 million tonnes from its seven refineries and 9.35 million tonnes from its subsidiaries.

Officials said a merged firm would have the size to compete with global majors and domestic rival Reliance Petroleum and could cut costs and have tax advantages.

But analysts said the merger would be difficult to implement and may not be the best way to compete with global majors.

"It has some potential but there would be very serious problems in bringing a merger. These are companies with very different philosophies and cultures," said R K Pachauri, director of the Tata Energy Research Institute.

"The question is whether one large monolith like this would be a better rival than specialised firms. In each segment, you could have a lean and mean company that does very well," he added.

Another analyst said any merger would need to bring staff cuts and lower expenditure.

"One has to carry out a very thorough exercise to see what the cost and benefits are," he said.

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