ONGC shelves M'lore refinery plan

Proposal to up stake in the refinery on the backburner after HPCL refused to sell 16.97% stake.

Oil and Natural Gas Corporation (ONGC) has put on the backburner its plan to increase its stake in Mangalore Refinery and Petrochemicals Ltd to 88.6 per cent. This follows Hindustan Petroleum Corporation Ltd's (HPCL) refusal to sell its 16.97 per cent stake to ONGC.

"We offered to buy HPCL's stake in Mangalore Refinery at the rate of Rs 38.5 per share or a consideration of nearly Rs 1,140 crore, but HPCL did not agree," an ONGC executive told Business Standard.

With this acquisition, ONGC would have become the sole promoter of Mangalore Refinery, for which it has ambitious expansion plans.

In order to gain complete control over Mangalore Refinery, ONGC, in 2003, had bought out Aditya Birla group's 37.4 per cent stake in the then loss-making Mangalore Refinery for Rs 59.43 crore, at Rs 2 per share. It had also bought out 20 per cent equity held by various financial institutions.

ONGC's current stake in Mangalore Refinery is about 72 per cent. The oil PSU plans to double the capacity of the refinery to 15 million tonnes per annum.

The ONGC executive added that at present, it did not make sense to buy the stake as the refinery stock prices had taken a beating during the last few days.

"The prices, at present, are Rs 31 per share, a good Rs 7 per share less than what we had offered. Even if HPCL agrees to the original proposal, it does not make economic sense for us to pick up the stake as of now," an executive added.

Petroleum ministry sources added that with neither of the companies very keen on the deal, the ministry would not push for the acquisition either.

Earlier, ONGC had planned to go for the acquisition despite HPCL's objection to it, by pushing the proposal through the Cabinet.

"We will take the proposal to the Cabinet, and HPCL being a public sector unit will have to abide by the government's decision," the then chairman and managing director of ONGC, Subir Raha had said.

This is the second time that ONGC's efforts to acquire HPCL's stake in Mangalore Refinery have hit a roadblock. Its previous attempt was thwarted when the disinvestment plan for HPCL was put on hold in 2003.

At that time, the acquisition proposal was cleared by boards of both the companies. ONGC had also cleared the decision to buy Hindustan Petroleum's stake at Rs 1,121.75 crore.