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Standalone refineries: Past time - Views on News from Equitymaster
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  • Jun 16, 2003

    Standalone refineries: Past time

    The concept of standalone refineries is fading away from Indian oil industry. The government is considering the potential benefits the consolidated structure garners and has done a fair job of consolidation. This has resulted into standalone refineries losing their existence in Indian industry.

    Earlier we had a number of standalone refineries like Chennai Petroleum, Mangalore Refinery, Numaligarh Refinery, Kochi Refinery, etc. This apart we have refining and marketing companies like HPCL, BPCL and IOC. Before deregulation, the refineries had a fixed route through which they used to supply their products to these marketing companies. Government took a proactive step of merging these refineries with marketing companies to get a benefit post deregulation.

    To put things into perspective, BPCL took control of Numaligarh Refinery and Kochi Refinery. As a result of this, BPCL, which depended on third parties for supply of petro products, has now become more self-sufficient. Erstwhile standalone refineries also become safer as they get shelter of the vast marketing network of BPCL. Another consolidation took place with Chennai Petro and Bongaigaon Refinery, both coming under the management control of Indian Oil.

    Former standalone refineries Parental control
    Chennai Petroleum IOC
    Bongaigaon Refinery IOC
    Mangalore Refinery ONGC
    Numaligarh Refinery BPCL
    Kochi Refinery BPCL
    Reliance Petroleum Reliance

    In another drive, Mangalore Refineries, which was a joint venture between HPCL and Birla group, has recently been brought under control of ONGC. Now ONGC has about 51% stake in the firm. Mangalore Refinery will get cheaper access to raw material on account of its synergies with ONGC. As a result of this, Mangalore Refinery, which was a sick company, is expected to become healthy in the current financial year. With the opening of ONGC's retail outlets, MRPL will further get stability as far as evacuation of its refinery products is considered. With the entry of Reliance in the marketing front, its standalone refinery (RPL) will also get benefits from supplying the product through its channel.

    The case applies to marketing front as well. To get the benefits of consolidation, the standalone marketing company IBP was sold off to Indian Oil Corporation. As a result of this, IBP will get access to the IOC's refineries and will derive benefits from the parent support. Thus it becomes clear that the government is actively involved in gaining synergies through consolidation and the one time standalone refineries concept is now almost extinct.



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