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Madras Refineries: Securing its future

Jul 21, 1999

Madras Refineries Limited (MRL) has entered into an alliance with Bharat Petroleum Corporation Limited (BPCL) to market its products for a period of 10 years. Madras Refineries operates a 6.5 mn ton refinery at Manali, Tamil Nadu. It also has a lube manufacturing unit (capacity of 270,000 tons per annum) and a wax manufacturing facility (capacity 20,000 tons per annum).

The energy sources industry in India is witnessing a revolution as the private sector gets increasing access to what was once a government operated sector. The refining segment of the industry has begun to feel the pinch of competition. The relatively small stand-alone refineries like MRL are entering into alliances with the industry majors to protect themselves from the competition that is likely to be unleashed when private refiners go on stream.

The small refineries, like MRL face two drawbacks: they lack the kind of economies of scale the large refiners enjoy and they do not have their own retail network. These drawbacks make the refineries vulnerable in this scenario of increasing competition as a result of which they are actively seeking to tie up with their larger peers. Moreover, given the large number of players in the refining segment, consolidation was always on the cards.

BPCL, which operates a sole refinery of capacity 7.3 mn tons, has a strong distribution network having 4,376 petrol pumps, 967 SKO/LDO dealers and 1,147 LPG dealers. The tie up would be beneficial for MRL as it would now have access to a retail network, while BPCL would benefit from larger volumes to feed its distribution network, reducing the pressure for expansion or entering into temporary alliances.

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