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Energy Sources Government proaction

Jun 2, 2000

There has been a lot of uncertainty regarding deregulation in the oil & gas sector and the subsequent change in the industry structure. The Government is now talking of pushing the reforms even before the earlier deadline of April 2002. The Government has now given some indication of the future industry scenario so as to enable the Indian players to withstand competition in the free market environment. There seem to be some concrete plans regarding consolidation in the sector.

The current industry structure:

Type of Companies

Exploration
Production
Stand-alone
Refineries
Refining
Marketing
Stand-alone
Marketing
Oil and Natural
Gas Corporation
Madras Refineries Bharat Petroleum
(BPCL)
Indo Burmah Petroleum
Oil India Ltd. Cochin Refineries Hindustan Petroleum
(HPCL)
 
  Numaligarh Refineries Indian Oil Corporation
(IOC)
 
 
  Bongaigaon Refinery    
  Reliance Petroleum    
  MRPL    

The Government has plans to merge the stand-alone refineries with the existing refining and marketing companies. As per the current scheme of things BPCL will acquire Cochin and Numaligarh Refineries while Madras Refineries and Bongaigaon Refinery & Petrochemicals will be merged with IOC. RPL already has a tie up with IOC for marketing its production and has indicated plans to acquire the stand-alone marketing company IBP.

Stand-alone refining and marketing companies will not be able to survive in the new consolidated environment and it is best that these companies are absorbed by R&M companies. There is only uncertainty regarding MRPL and IBP, though it felt that MRPL will induct a foreign strategic partner as it plans to set up an independent marketing channel. One solution could be to merge MRPL with IBP as it would create strategic advantages for both and result in a more competitive environment.

Restructuring of the industry is definitely on the cards and once the consolidation is over one can hope that the market starts to view this industry favourably.

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