IBPís arranged marriage with IOC - Views on News from Equitymaster

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IBPís arranged marriage with IOC

Jun 28, 2000

Indo Ė Burmah (IBP) the stand-alone marketing company for the last few years must have felt like a beautiful women with a number of companies vying for it. The suitors included Indian Oil Corp. (IOC), Bharat Petroleum (BPCL), Hindustan Petroleum (HPCL), Reliance Petroleum (RPL) and select international majors. The Government has finally decided to divest its stake of 59% in favour of IOC. This will result in the restructuring of marketing assets while that of refining assets remain pending. As per the latest reports, IOC will acquire Madras Refineries (MRL) and Bongaigon Refineries & Petrochemicals (BRPL) while BPCL is said to be acquiring Numaligarh Refineries (NRL) and Kochi Refineries (KRL). The privatisation of the Refining & Marketing (R&M) companies will probably commence only post restructuring of the sector.

Current Scenario HP BP IOC IBP
Petrol/Diesel pumps 4,381 4,423 6,954 1,440
SKO dealers 1,625 950 3,422 375
ATF stations 9 16 92  
LPG distributors 1,471 1,200 2,977  
Total outlets 7,486 6,589 13,445  
Post Restructuring HP BP IOC  
Petrol/Diesel pumps 4,381 4,423 8,394  
SKO dealers 1,625 950 3,797  
ATF stations 9 16 92  
LPG distributors 1,471 1,200 2,977  
Total outlets 7,486 6,589 15,260  

The acquiring of IBP by IOC will further cement IOCís position in the high margin-marketing segment. This will result in creation of a monolith while worldwide the focus is on checking anti-competitive mergers and dismantling monopolies.

One reason behind the Government further strengthening IOCís position could be the impending privatisation and deregulation in the sector. Divesting itís stake in IBP in favour of the other two PSUís would strengthen their position and make it tougher on IOC in the post deregulation scenario. It also indicates that strategic stakes will be offered in BPCL and HPCL to international bidders.

The Government plans on divesting only 10% of its stake in IOC. If it plans to remain in the petroleum sector post deregulation it definitely will not make it tougher on itself. One can therefore expect the other oil PSUís to be put on the blocks.

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