Hindustan Petroleum Corporation Ltd (HPCL) is likely to turn down a proposal to market 25 per cent of the output of Reliance Petroleum Ltd's (RPL) Jamnagar refinery.
HPCL is of the view that the output from its three refineries is more than sufficient to meet its requirements. In fact, officials point out that the production is more than the company's market share.
The other reason for HPCL desisting from entering into a marketing agreement with RPL is the liquidity damages clause which stipulates that in case the committed quantity of products is not evacuated by the contracting party, it will have to pay RPL Rs 700 per tonne as damages. HPCL says that there is an excessive refining capacity in the world and that such a clause is never present in any international agreement.
HPCL's Mumbai refinery has a capacity of 5.5 million tonnes, Vizag 7.5 million tonnes, and the joint sector Mangalore Refineries and Petrochemicals Ltd (MRPL) after expansion will have a capacity of nine million tonnes. Therefore, the total capacity of the three refineries comes to around 22 million tonnes.
Officials point out that since most of the refineries operate at levels above their nameplate capacities, it is safe to assume that the production from these three refineries will be around 23 million tonnes.
However, the company sold a mere 17 million tonnes of products in 1998-99. Even assuming an annual increase of 10 per cent in the consumption of petroleum products, the company can hope to sell a maximum of 18.7 million tonnes of products this year.
This implies that HPCL will still have an excess capacity of around four million tonnes of petroleum products during the current financial year. However, during the transition period till 2002, it is for the Oil Coordination Committee (OCC) to find buyers for this excess quantity.
In case HPCL refuses to accept its share of RPL's production, IOC will be free to lift it. The government has also made it abundantly clear to RPL that in case there is no demand for its products within the country, RPL would have to export these at its own cost and risk and that in case such an export entails any losses, these will not be born by IOC, HPCL or BPCL.
