Be it any of the refining companies they all seem to have a single point agenda. Each one is modeling its business to become an integrated energy company.
The latest is Oil & Natural Gas Corporation (ONGC), India's leading exploration & production company. ONGC has recently announced plans to diversify along the energy chain. The diversification is planned to enhance revenue growth and provide stability in earnings. Currently, the company witnesses significant fluctuation in margins due to the volatility in oil prices. Diversification will also help bring down the heavy tax burden and enable better utilization of free cash flows.
ONGC has indicated intentions of entering oil refining, petrochemicals and power generation. This is similar to the business model of international majors.
In oil refining the company is in talks with Bharat Petroleum (BPCL) for acquiring a stake it the 6 m metric tonne (MMT) Bina refinery. BPCL was earlier in talks with Oman Oil for the joint venture.
ONGC's foray into power is through a joint venture with National Thermal Power Corporation (NTPC). The project envisages setting up of a 300 MW plant in Hazira. The company is also planning its petrochemical project in Hazira. This initiative will be in a joint venture with BPCL for setting up a 270,000 paraxylene (PX) plant.
The diversification is a welcome move, as currently the Government has capped the company's margins under the administered pricing mechanism.
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