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Wednesday, Mar 12, 2003

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IOC seeks to buy less from Reliance Petro — To absorb more from MRPL

Balaji C. Mouli

NEW DELHI, March 11

INDIAN Oil Corporation (IOC) is combing its agreement with Reliance Petroleum Ltd (RPL) to see if it can reduce the quantity of products it purchases from the refiner so that it can absorb additional capacity from MRPL, which has recently entered the Government's stable, a senior IOC official said.

RPL currently does not have retail outlets to sell its products domestically and has a contract, which ends next year, whereby IOC buys around 13 million tonnes of products from it annually.

If IOC is not able to free itself from RPL's obligations, it might need to reduce its refinery output to accommodate additional products from MRPL's refinery, which has had three million tonnes capacity idling for the last few years and no retail outlets of its own.

IOC itself has a refining capacity of around 50 million tonnes per annum.

IOC's move follows a letter from ONGC, the new owner of MRPL, seeking sale of products from its idling three million tonne capacity which will now come alive following the takeover due to tax breaks as well as financial restructuring.

Over the last few years, the ailing refinery has been selling around six million tonnes of products from its nine million tonne capacity refinery.

This has been due to two reasons. Firstly, public sector marketing companies were lifting to the extent of market demand from MRPL, earlier a joint venture between HPCL and the Aditya Birla group.

Secondly, the refinery was laden with expensive debt, making it unviable in the marketplace.

Under the takeover terms, the viability of the refinery has been restored, releasing the remaining three million tonne capacity in the marketplace.

Further, ONGC argues that since MRPL now sports the public sector badge, its entire output must be sold through public sector outlets.

IOC is faced with the prospect of carrying the can, since the other two marketing companies, HPCL and BPCL, are already sourcing some of their product requirements from IOC due to shortage of refining capacity.

Also, IOC has a 60 per cent market share in the retail segment with 20 per cent apiece enjoyed by HPCL and BPCL.

Importantly, IOC will be the only company to remain in the public sector domain with the other two companies on the privatisation block.

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