The Bharat Petroleum Corporation (BPCL) has offered a stake in the 7 million tonne per annum Bina refinery to Indian Oil Corporation (IOC).
IOC is India's largest company. It dominates the oil sector with a 45% refining capacity (almost 32 million tonnes) and a 55% market share. Its distribution network includes 6,779 petrol pumps, 3423 dealers and 2902 LPG distributors.
BPCL is an integrated oil company with a refining capacity of over 7.3 million tonnes. Its distribution network includes 4,376 petrol pumps, 967 dealers and around 1150 LPG distributors.
However, BPCL has a single production facility in Mumbai (West India) while it sells almost 18 million tonnes through its all India retail network. So far, BPCL meets its refining requirements through Madras Refineries (South) and Indian Oil Corporation (IOC) for North India but post deregulation this will not happen. Hence the need for an all India refining network.
The refinery at Bina in Madhya Pradesh was a joint venture with the Oman Oil Company (OOC). However, with OOC not too keen to participate in a grass root refinery in India at this point in time, BPCL requires another partner. Hence the approach towards IOC.
IOC in turn wants to expand its refining capacity to 88 million tonnes by 2007. It is already working on expanding its refinery in Gujarat from 12 million tonnes to 18 million tonnes. It has further plans of expanding this refinery to 25 million tonnes over the next three year’s. Besides, IOC has also been working on a refinery in the East Coast (which was a joint venture with Kuwait Petroleum Corporation).
A seven million tonne refinery needs a capital expenditure of Rs 70 bn. Assuming a debt equity of 2:1 the total equity contribution would work out to Rs 23.3 bn. A 26% stake for IOC would mean an investment of over Rs 6 bn. At this stage it is difficult to say whether IOC would take a stake in the Bina refinery.
LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.
SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.
Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India. Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: firstname.lastname@example.org. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407