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Independent refiners look for tie-ups - Views on News from Equitymaster
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  • Nov 22, 1999

    Independent refiners look for tie-ups

    According to newspaper reports, Total (France) is exploring the option of picking up a stake in Essar Oil's refinery project, even as it is in talks with Mangalore Refinery & Petrochemicals Limited (MRPL) for equity participation.

    MRPL (FY99 Sales Rs 14.2 bn) has been jointly promoted by the Aditya Birla Group and Hindustan Petroleum Corporation Ltd. (HPCL). It operates a 9 m tonnes per annum refinery. The company's output is currently sold via the HPCL distribution network.

    Essar Oil is currently in the process of setting up a 10 MMTPA petroleum refinery. The refinery, however, is scheduled to be commissioned in 2002.

    India's domestic refining industry is undergoing a revolution. And as in most cases, the rush to tap the large domestic demand has led to a building up of excess capacity. In the process the bargaining power has shifted from the refiners to marketers (the owners of the retail outlets petrol pumps), as the former look for outlets to sell their output.

    Independent refiners like Essar Oil and MRPL (although it has a tie up with HPCL) lack two major ingredients needed to survive in the emerging scenario-large capacities that will make them cost efficient, and a dedicated retail network to reduce their dependence on competitors that own these networks. Unfortunately, they lack both and therefore the need to look for a partner which has access to large resources to fund capacity expansions and/or a marketing network.

    While MRPL is looking for a partner that will bring in resources to build its planned domestic retail network, Essar Oil is considering offering equity to an oil marketing company like Indian Oil Corporation (IOC). Bringing in a partner like Total will benefit the companies, as there will be a fresh infusion of resources. Moreover, these companies will benefit from the global presence of a company like Total.



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