Indian Oil Corporation (IOC) is weighing an option of picking up 26 per cent equity in the upcoming Rs 10,000 crore refinery of Essar in Gujarat. This is against the marketing rights, for which, both have already signed a memorandum of understanding (MoU).
Top officials of Essar had visited IOC last month to persuade the oil company to pick up stake in the nine million tonne refinery at Jamnagar, IOC sources said.
When contacted, IOC chief, M A Pathan said Essar proposal had not specified the quantum of equity participation and that the corporation was looking at various options.
"We have an MoU for marketing the products from the refinery for ten years from its completion," he said, while adding that IOC had not yet firmed up its views on this, thus ruling out the possibility of taking the proposal to the board in the next meeting.
IOC sources, however, said that the corporation was planning of picking up 26 per cent equity at Rs 800 crore and the part ownership in the project certainly had advantages over the MoU.
Industry sources said Oman Oil Company was also exploring possibilities of participating in the refinery and it is reported to have expressed the desire to project promoters, so that IOC's presence in the project would help them firm up their decision.
Pathan said any decision on taking up the stake would depend on the refining capacity in the region, marketable petro-products and IOC's marketing pact with Essar's market competitor Reliance, who commissioned the country's largest refinery of 27 million tonne at Jamnagar in December 1999.
One view among the top echelons of IOC was that the Rs 800 crore equity participation could at best give it the dividend and the rate of return on investment, which might be lower than the cost of money in the short term.
"We already have the marketing rights and so it needs to be evaluated in terms of returns, whether pumping of money is good economics," a company director said.
However, another director said an MoU would simply not give IOC a word of finality in product management, which could be of crucial interests to the corporation, having a market share of 55 per cent now, in the deregulated scenario from April 2002. "With the 26 per cent equity, we are also owners and can decide on the policies," he added.
Meanwhile, vice-chairman and managing director of Reliance industries, Mukesh Ambani said that its relationship with IOC would not be affected, if the latter decided to pick up stake in Essar.
