As Oil and Natural Gas Corporation (ONGC) prepares to take over Hindustan Petroleum Corporation (HPCL), it will mark a homecoming for another entity involved in the exercise.

Mangalore Refinery and Petrochemicals (MRPL), which was once part of HPCL and then changed hands to ONGC, will now to be back in the fold of its original parent. This is part of the overall plan where HPCL is expected to buy MRPL from ONGC for a hefty Rs 15,000 crore.

While the payout for ONGC to buy out the Centre’s 51 per cent stake in HPCL will cost nearly Rs 30,000 crore, a sale of its own equity in MRPL as part of the integration effort will reduce this outgo by half. In the process, this will mark a journey back home for this 15 million tonne refining company which was first created as a joint venture of HPCL and the AV Birla Group in the early 1990s.

When the partners decided to call it a day, HPCL had the first right of refusal in buying out its ally’s 37 per cent stake but did not seem remotely interested. This was the time an aggressive ONGC stepped into the picture and bought out the AV Birla Group’s stake in 2003 as part of the exercise to gain control.

Today, ONGC is the major shareholder in MRPL with 72 per cent, while HPCL’s equity has whittled down to a paltry 17 per cent. During these years, it has continued to market MRPL’s diesel and petrol across its vast array of retail outlets even while its top management has constantly rued “losing a valuable asset” to ONGC.

HPCL had also, from time to time, hinted to the Petroleum Ministry that it was keen on increasing its stake in MRPL beyond the meagre 17 per cent but nothing came out of these pleas. ONGC was not remotely interested in selling its stake even while little had been achieved from its MRPL acquisition in terms of entering the fuel retail space.

The Petroleum Ministry wanted ONGC to focus on its core business of exploration and production, while HPCL would handle MRPL’s output of auto fuels across its own retail network. Today, the wheel has come full circle but at a heavy price.

If everything goes according to plan, once HPCL buys out ONGC’s 72 per cent stake, its own holding in MRPL will be up to nearly 90 per cent. The added bonus will be in getting a foothold into the petrochemicals space, an area of tremendous interest for HPCL.

Yet, it will be a lot of money to fork out considering that HPCL will still end up being the secondary sibling to ONGC after the entire exercise is completed. “HPCL’s status will be at par with what MRPL’s was with ONGC which was the more dominant partner by virtue of its status as owner,” says an oil industry executive.

In this instance too, it is ONGC which is going to buy out the Centre’s holding in HPCL which pretty much means that it will call the shots from now. “It’s all very nice to think that both will be independent entities after the sale but HPCL will have a secondary role,” adds the executive.

Once MRPL is back in its fold, along with the petrochemicals business, there would be no compelling reason for HPCL to pursue its Rajasthan refinery project. In any case, this was put on hold for over three years since the time the foundation stone was laid during the UPA 2 regime. It has since been revived but there is no telling if it will become a reality.

In any case, decision-making at HPCL will see a change once ONGC gets into the driver’s seat since there will now be two heads instead of one when it comes to vetting proposals. How this will affect other investments going forward remains to be seen.

Apart from the MRPL merry-go-round saga, it is a moot point if the ONGC-HPCL deal will actually end up creating an integrated oil company. What it will bring in is a cool Rs 30,000 crore to the Centre which will continue to be the largest shareholder in the new entity. From HPCL’s point of view, it will be poorer by Rs 15,000 crore by taking over MRPL which it really should not have lost in the first place.

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