The Hindu Business Line : HPCL keen on increasing stake in MRPL

Mumbai, Dec. 15 Hindustan Petroleum Corporation (HPCL) is keen on substantially increasing its stake in Mangalore Refinery and Petrochemicals (MRPL) from the present level of 16.97 per cent.

The 9.6-million tonne standalone refinery is now in the control of the Oil and Natural Gas Corporation (ONGC), which holds 72.15 per cent equity. Financial institutions and the public account for the balance.

It is up to ONGC to decide if it wants to divest a part of its stake in favour of HPCL. Ironically, it would mark a complete volte-face given that the latter was the original co-promoter of MRPL with the AV Birla group way back in the 1990s. The project then was not making money and relations between the two partners were not that rosy either.

As sources recall, HPCL could have easily bought out the Birlas’ stake in the project when it was “literally offered on a platter”. As it hemmed and hawed, ONGC quickly stepped into the picture, acquired the 37.4 per cent stake for nearly Rs 60 crore and then pumped in an additional Rs 1,000 crore in phases to increase its stake to over 72 per cent.

The company was keen on building a retail network of over 1,500 outlets which would have marked an aggressive foray into the downstream sector. However, the Petroleum Ministry took the view that ONGC had to focus on its core competence of exploration and production, with the result that there are barely half a dozen exclusive retail outlets under the OVAL (ONGC Values) and HiQ (MRPL-promoted) umbrellas.

Best option

On the other hand, HPCL has over 8,500 retail outlets, but is in dire need of more products. It has two refineries in Mumbai and Visakhapatnam, but MRPL, located on the west coast, is the best option to meet fuel requirements in Karnataka and parts of Andhra Pradesh.

Experts believe MRPL is better off in the hands of HPCL at this point because it is a standalone refinery which needs massive marketing support. “MRPL could not afford to sell auto fuels at a subsidy when crude prices were at an all-time high of $147 a barrel. It does not have a public sector status where losses can be made up with oil bonds from the Centre. Now, with falling crude prices, its gross refining margins are also under tremendous pressure,” they add.

It’s up to ONGC

At this point, MRPL can only hope to cater to direct end-users such as power and fertiliser plants or shipping companies. A large part of its output is also exported but then this may not be a viable solution in the near future given the global slowdown and consequent fall in demand for petro-products. The need for greater local marketing support will only grow once its expansion programme to 15 million tonnes is complete by 2010.

“The ball is clearly in ONGC’s court now. It can command a premium for offloading part of its stake to HPCL while still retaining majority control. It makes sense because there is no way it is going to set up its own outlets in a hurry,” sources said.

In fact, during the time when it was going flat out with its retail vision for MRPL, ONGC was keen on acquiring HPCL’s residual 17 per cent equity which would have increased its stake in MRPL to 89 per cent. It was at this time that the Petroleum Ministry spiked the plan when a smattering of outlets had barely been commissioned.