In the Budget Speech for the financial year 2016-17, the Government of India proposed its vision to strengthen Central Public Sector Enterprises (CPSEs) engaged in the Oil and Gas Sectors (OGS) through consolidation, mergers and acquisitions.
Paving a way for fast track consolidation in the oil and gas sector, the Ministry of Corporate Affairs, Government of India (MCA) has exempted all cases of combinations involving CPSEs operating in OGS, along with their wholly or partly owned subsidiaries operating in OGS, from Section 5 and Section 6 of the Competition Act, 2002 (Competition Act).
On 22 November 2017, MCA, issued a notification (Notification) which provides that Section 5 and Section 6 of the Competition Act (concerning the regulation of combinations), will not apply to combinations involving CPSEs operating in OGS under the Petroleum Act, 1934 (and the rules made thereunder) or under the Oilfields (Regulation and Development) Act, 1948 (and the rules made thereunder), along with their wholly or partly owned subsidiaries operating in OGS.
The exemption is applicable for a period of five years and significantly, comes against the backdrop of the reportedly ongoing consolidation of Hindustan Petroleum Corporation (HPCL) with Oil and Natural Gas Corporation Limited (ONGC).
The Competition Commission of India (Procedure in Regard to the Transaction of Business Relating to Combinations) Regulations, 2011 exempts intra-group acquisitions. While, the majority shareholding in all CPSEs in OGS may be ultimately held by the Government of India, as per CCI’s interpretation, they may not be considered to be a “group” and thus, not exempted from seeking approval for inter-se transactions between each other. In fact, CCI has held[I] that though oil PSUs are controlled by the Government of India, they do not control management or affairs of each other and therefore, they may not be considered as “group”.
Further, CCI’s decisional practice with respect to public sector undertakings concerning combination regulations indicates a similar approach. In this regard, CCI in earlier two instances involving amalgamation of Rajasthan Marudhara Gramin Bank/State Bank of Bikaner and Jaipur, (Combination Registration No. C-2016/02/377) and Bharatiya Mahila Bank Limited/State Bank of India (Combination Registration No. C-2016/11/458), based on the suo-moto inquiry, found the combinations notifiable. In fact, CCI imposed penalty on Marudhara Gramin Bank/State Bank of Bikaner and Jaipur for failure to notify the CCI within the prescribed timeline.
Accordingly, to fast track the consolidation of certain specific banks, MCA earlier this year also exempted (i) Regional Rural Banks; and (ii) all cases of reconstitution, transfer of the whole or any part thereof and amalgamation of nationalized banks.
Key Take Aways
This Notification heralds an important step towards accomplishing the vision articulated by the Government of India – to create an integrated public sector oil “major”, with presence across the entire value chain in OGS, which will match the performance of international and domestic public sector oil and gas companies.
The Notification is a welcome move as it furthers the intent of the Government to strengthen the CPSEs through consolidations, mergers and acquisition and will help CPSEs to withstand the international volatility in oil prices and improve competitiveness in the domestic market.
*The author was assisted by Anu Monga, Director – Competition Practice and Rishabh Arora, Associate
[I] North East India Petroleum Association vs. Ministry of Petroleum & Natural Gas & Anr. (order dated 11 February 2014)