Ioc Board Clears Tie-Up With Reliance Petroleum Petroleum

The board of Indian Oil Corporation has cleared the public sector units memorandum of understanding with Reliance Petroleum Ltd (RPL) for marketing and distributing petroleum products manufactured by RPLs 15-million-tonne refinery in Jamnagar, Gujarat.

Under the terms of the MoU, RPL would have to invest in setting up a marketing terminal and evacuation facilities, a senior Indian Oil official said. Indian Oil will have the sole marketing rights all over the country.

The draft MoU, discussed at an Indian Oil board meet in February, is with the government for approval. It will be signed after it is approved by the government. The MoU is valid only in the period of the administered pricing regime. However, once the oil sector is decontrolled, the MoU will lapse, say Indian Oil sources.

 

RPL began talks with Indian Oil in 1996 after its MoU with Bharat Petroleum Corporation Ltd (BPCL) expired in August 1994. The original plan envisaged RPL selling its products through BPCLs over 4,000 retail outlets all over the country. BPCL was to set up marketing and infrastructure facilities like jetty, tank farm and pipelines near the refinery, which was supposed to have a capacity of 9 million tonnes per annum.

The original plan envisaged a Rs 5,142 crore investment in the project. According to this plan, the cost of producing 1 million tonnes per annum was Rs 571 crore. This went up to Rs 579 crore per million tonnes per annum when RPL decided to take up the capacity to 15 million tonnes per annum at a cost of Rs 8,694 crore. RPL will now have to bear the extra cost of setting up the marketing terminal.Industry analysts put the cost of setting up the marketing terminal at Rs 1,200 crore, which will now have to be borne by RPL. The terminal, under the revised plan, will have a capacity to handle 15 million tonnes per annum, said company sources.

RPL officials say the increase in capacity from 9 million tonnes per annum to 15 million tonnes per annum is, in fact, an asset creation for the company and should not be considered as cost overrun. RPL officials, however, say talks are still on with Indian Oil and several other PSUs for the marketing terminal tie-up and no final decision on the funding has been taken. Refusing to give details, a senior RPL official said they would be revealed at an appropriate time as per the regulations or in its financial communications to its share holders.

The marketing tie-up is crucial for RPL, as it does not have a nation-wide distribution network for its products.The details of the marketing tie-up were discussed at the meeting with the consortium of lenders in March 1995. However, financial institutions are now re-appraising all mega projects in the country and the issue of tie-up with RPL has now come up for discussion.The minutes of the meeting state: BPCL has submitted a feasibility report to the Union government for a marketing terminal and govt approval was awaited. It was stated that Reliance Industries would consume a substantial part of naphtha for its cracker plant at Hazira, it would be transported by sea.

It was also mentioned that Reliance would set up facilities for LPG transportation/distribution, inclusive of two port terminals at east and west coast.

Further, a dialogue with GAIL (Gas Authority of India Ltd) had also been initiated by the company for extending its Gandhar/Kandla pipelines to Jamnagar. It was clarified that the company had made provisions for product tankages for 15 days cover and BPCL would instal product tankages for 21 days in line with industry practices.

The minutes further add: BPCL would need to be well synchronised with the implementation scheme of the refinery.

Company officials state that the delay in setting up the facility may not have much of a bearing on the operations of the company, with the scheduled project completion year extended from 1996 (as stated in the MoU) to 1999.