Air India lesson for oil merger

New Delhi, Feb. 12: The government should be cautious with its plan to merge state-owned oil companies such as ONGC and IOC, analysts said.

They pointed out at the botched-up merger of Air India and Indian Airlines, which resulted in the national carrier looking for government support to survive.

The government should weigh all options before moving ahead, they added.

"Merging state-owned oil companies is a significant challenge," former petroleum secretary Saurabh Chandra said while referring to the Air India-Indian Airlines merger. "The different work culture and hierarchical structures of the airlines were not taken into consideration while merging them and this botched up the affairs."

While presenting the Union budget, finance minister Arun Jaitley said, "We seek opportunities to strengthen our central public-sector enterprises through consolidation, mergers and acquisitions."

Incidentally, a similar proposal for oil companies was considered more than a decade ago but was set aside when a committee said such a merger might not be feasible.

Arvind Mahajan, head of energy at KPMG, said, "The fragmented nature of the state oil companies leads to inefficiencies. Merging them could help solve that as well as give them the financial clout to be able to compete for contracts, especially outside India."

Kalpana Jain, partner at Deloitte, said it was important to consider that in the last decade-and-a-half, since the idea was promulgated, the business nature of the PSUs has undergone a sea change. "Though the scale and financial muscle seem to be the obvious upsides, it could be challenging to implement efficient post-merger operations, systems and processes along with employee management," she said.

Air India