In unity lies strength. At least, this is the Centre’s thinking with its plan to have three public sector oil companies jointly setting up a mega refinery in coastal Maharashtra.

Petroleum Minister Dharmendra Pradhan made this announcement on Monday and if things go according to plan, IndianOil, Bharat Petroleum Corporation and Hindustan Petroleum Corporation will come together for this project, which will cost upwards of Rs 50,000 crore. It is only IOC that does not have a presence in this region and will, in all likelihood, take the lead role in this refinery.

“These are early days yet but the trio should be logically looking at a minimum capacity of 30 million tonnes and even going up to 45 mt,” says an oil sector executive. After all, he reasons, these are the kind of numbers that a gigantic combine should aim for, especially when a private sector company like Reliance Industries is comfortably operating a 62-mt facility in Gujarat.

BPCL and HPCL have individual refineries in Mumbai with combined capacities of over 20 mt. IOC has indicated that it is scouring for a location on the West Coast. It could be ruing a missed opportunity in the form of Mangalore Refinery & Petrochemicals (MRPL), formerly a joint venture between the AV Birla Group and HPCL, which is now in the hands of the Oil and Natural Gas Corporation.

With its strong presence in the North and East, IOC will be hoping to bridge the deficit in the West through this three-way partnership with HPCL and BPCL. It may opt to have a 50 per cent stake with the balance equally divided between its two PSU counterparts. “This back-end synergy makes sense and the three companies will still end up being competitors at the retail front-end,” says another oil industry official.

For HPCL, this will be welcome news considering that its Maharashtra refinery proposed in Ratnagiri has not made much headway. This is equally true for its refinery-cum-petrochemicals complex at Rajasthan, which means that the company would do well to have extra capacity that can bridge the gap with growing demand for petro products.

It is also not for the first time that PSU oil companies have attempted to come together. For instance, ONGC was keen on picking up a stake in BPCL’s Bina refinery in the late-1990s as part of its vision to enter the downstream space. When this did not work out, it entered into a collaborative pact with IOC where the two would work jointly in their areas of expertise, ranging from refining and exploration to petrochemicals and power.

While nothing much came out of this (barring joint participation in exploration fields overseas), ONGC quickly moved in to snap up MRPL when the AV Birla group decided to exit its partnership with HPCL. It is still a mystery why IOC and HPCL missed the bus here because it would have given them a strong foothold in the western region. ONGC has also not managed to carve out its retail ambitions with MRPL and continues to be the largest shareholder with HPCL in a secondary role.

Another upstream player, Oil India, has a stake in the BPCL-led Numaligarh refinery in Assam whose capacity is a modest three million tonnes. Liquefied natural gas is another joint foray for PSU oil companies under the Petronet umbrella. Something similar was attempted in pipelines to promote the common carrier principle with Petronet India but died a quiet death.

Policy makers have, in the distant past, successively pushed for restructuring of the oil industry where standalone refiners such as Chennai Petroleum Corporation merged with IOC, while Kochi Refineries went into BPCL’s fold. Likewise, IBP, the standalone marketing company, was absorbed by IOC.

Monday’s announcement of the mega refinery marks another important step in an endeavour to team up and yet remain competitive.

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