The Indian Oil Corporation was also in the running to bag the mandate and the tie-up with BPCL could pave the way for a stronger relationship with MRL in the future. IOC, it may be recalled, has already entered into a five-year marketing agreement with Cochin Refineries and was keen on forging a similar pact with MRL.

To BPCL, this development is a shot in the arm as it has always been seeking more products for its network of over 4,000 retail outlets. The navratna has only one refinery in Mumbai with a capacity of 6-million-tonnes and has been seeking strategic tie-ups with standalone refiners like MRL and CRL whose products will satiate its outlets.

The Nitish Sengupta committee, which was formed by the ministry of petroleum and natural gas to suggest asuitable recast proposal for the downstream oil sector, had recommended a strategic alliance of CRL with BPCL. The panel had indicated that MRL would be welcome to choose between IOC and BPCL at a later stage. The recommendations were rejected by the finance ministry which insisted that a transparent bidding process be adopted to decide the future of these standalone refining companies.

It is now very likely that BPCL will help MRL in its endeavour to set up its first retail outlet. The latter has already identified some sites near Chennai and will finalise a location during the next few months. "There will be no direct investments made by BPCL in MRL's retail plan. Since the PSU has the experience of operating nearly 4,500 such outlets all over the country, it will be in a better position to give some valuable advice to MRL," sources said.

It was nearly a year ago when the petroleum ministry had allowed MRL and CRL to set up their own retail outlets as part of an overall marketing plan for the highways.This was the best piece of news to both oil companies as they had been lobbying hard for several years with the Government to grant them exclusive marketing rights, a function catered to by the big three -- IOC, BPCL and BPCL -- as also IBP, the sole marketing company.

However, experts reiterate that there is no way either MRL or CRL can invest in putting up retail outlets as this would call for a substantial sum to be set aside. This apart, the two PSUs do not have any expertise in marketing which necessitates a tieup with their stronger allies. This was the basis of the Sengupta report and even if there is a delay in implementing it because of a possible change in government, it is all too clear that neither MRL nor CRL can possibly survive on their own in a deregulated scenario.

MRL is, incidentally, awaiting approval from the Public Investment Board (PIB) for expansion of its Manali refinery to 9.5 million tonnes. The petroleum ministry has already cleared the proposal and once the PIB nod comesthrough, the expansion will be complete by 2002.

The cost of the plan has been estimated at Rs 2,100 crore which will be funded through a combination of debt and internal accruals in the ratio of 2:1. Once this is done, the capacity of MRL's 350mw power plant, proposed as a joint venture with Larsen & Toubro, will also be enhanced to 500mw. The fuel for the project will be the refinery's heavy residue.

The latest report of the petroleum ministry states that the cost of the power project has been pegged at Rs 1,100 crore. The pre-feasibility report has been submitted to the Government and the project will not only improve middle distillate yield but improve the refinery's profitability.

INSIGHT
A win-win deal for BPCL, IOC

Bharat Petroleum with an installed capacity of 6 million tonnes will now be marketing products of Madras Refinery having a capacity of 7 million tonnes. For BPCL this would mean that the company will enjoy the benefits of higher marketing margins of MRL. BPCL isexpected to show good results in this fiscal as it will also be marketing 25 per cent of Reliance Petroleum's product, since margins in marketing are higher than in refining.

As for IOC, the company will to some extent be relieved that it does not have to market MRL's product, since it will have to market 50 per cent of Reliance Petroleum's 27 million tonne refinery products. IOC had little room to market products of new capacities after its own 6 million tonne Panipat refinery was commissioned.

--Shishir Asthana