The co-operative fertiliser giants, Indian Farmers Fertiliser Co-operative (Iffco) and the Krishak Bharati Co-operative (Kribhco), plan to float a special purpose vehicle (SPV) along with the Oman Oil Company (OOC) to bid for the two public sector oil refining and marketing companies -- Bharat Petroleum Corporation Ltd (BPCL) and Hindustan Petroleum Corporation Ltd (HPCL)-- which are slated for disinvestment.
While the Iffco-Kribhco combine proposes to keep a majority stake in the SPV, OOC will have less than 51 per cent shareholding in it.
The two co-operative fertiliser manufacturers are setting up a $1.2 billion fertiliser unit in Oman in association with OOC. The unit will have a production capacity of 1.6 million tonnes of urea. Iffco and Kribhco see the acquisition of the oil marketing companies as backward integration since the two companies are among the largest consumers of some of the products produced by the refining companies.
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Even if they are able to acquire one of the two refining companies, it would help them secure their supplies of naphtha, the key feedstock for production of urea.
Moreover, the two fertiliser manufacturers see a synergy between the distribution networks of petroleum companies with their own sales network, particularly in the rural markets. The countrywide network of co-operatives and the base that the two fertiliser manufacturers have among farmers can be leveraged to sell petroleum products more effectively.
With the focus now shifting to acquiring a managing stake in the refining companies, the Iffco-Kribhco duo may drop earlier plans to participate in the disinvestment of the Shipping Corporation of India (SCI).
Though no final decision has been taken, officials say even if the two companies bid for SCI, their efforts would be concentrated on acquiring BPCL or HPCL.The combine has adequate funds to bid for the oil companies, they say.
Iffco will receive Rs 700 crore from the government following the implementation of the seventh and eighth pricing policy. Kribhco will have a cash surplus of around Rs 800 crore.