A draft note prepared for the Cabinet Committee on Economic Affairs has suggested that Madras Refineries Ltd be merged with Indian Oil Corporation, and Cochin Refineries Ltd with Bharat Petroleum Corporation Ltd.
The draft note, to be circulated among the various ministries concerned shortly, will be followed by a final note by the petroleum and natural gas ministry.
The move has been prompted by the recommendation of the Nitish Sengupta committee that the government should offload its entire stake in the two refineries in favour of IOC and BPCL to face competition from multinationals once the petroleum sector is thrown open after March 2002.
However, the finance ministry has been suggesting piece-meal divestment in the two refining companies, arguing that the levels of divestment should be high enough for IOC and BPCL to get management control of the two refineries.
The finance ministry has been in favour of retaining the balance equity in the two refineries which could be offloaded later.
The finance and petroleum ministries had set up a committee to determine the quantum and the price at which these shares would be offloaded to IOC and BPCL.
Though the committee's recommendations have not been divulged, it is learnt that the draft note has been prepared on the basis of these recommendations.
CRL has been strongly opposed to converting it into a subsidiary of BPCL. Such a step, according to CRL, would not be in the best interest of the company whose growth prospects would recede in the decontrolled petroleum regime after March 31, 2002.
CRL has been categorical that the Sengupta committee's assessment regarding the profitability of the company was "not accurate". It had a margin of around $1 a barrel even when the oil prices were all-time low.
Now that the oil prices have started firming up once again, its margin had moved to $ 2.5 a barrel.
It has been citing a number of examples of the stand-alone refineries doing good business in a number of countries even during the period when oil prices were low. CRL has pointed out that it is only in the countries having excess refining capacity that margins of stand-alone refiners came under stress during this period.
CRL has said that even in India, the stand-alone private-sector refineries have just a marketing tie-up with IOC. A similar arrangement could be worked out in the case of the stand-alone public sector refineries, which could have a long-term marketing arrangement with oil PSUs.
Gigacorps In The Making
Rs Crore IOC MRL
Mar'98 Mar'99 Mar'98 Mar'99
Sales 59,874.37 63,761.40 2,720.08 3,747.39
Other income 1,386.60 1,067.26 81.53 99.27
Interest 1,126.15 1,202.78 151.84 141.64
Gross Profit 3,001.59 3,785.52 225.31 354.64
Depreciation 1,036.85 1,053.00 80.85 79.00
Tax 258.24 519.00 15.19 70.17
Net profit 1,706.50 2,213.52 129.27 204.93
Rs Crore BPCL CRL
Mar'98 Mar'99 Mar'98 Mar'99
Sales 11,839.01 21,599.77 4,374.51 4,171.36
Other income 221.19 80.11 37.31 95.62
Interest 112.24 174.52 41.97 50.35
Gross Profit 1,110.42 1,365.56 341.55 548.40
Depreciation 382.35 403.99 49.64 52.17
Tax 187.00 277.00 71.50 158.00
Net profit 541.07 684.57 220.40 338.23
