Different strokes for different folks

It’s unfair for oil PSUs to continue to market Reliance’s products

Murli Gopalan

During 2001-02 the crude thruput at Indian Oil’s (IOC) seven refineries was barely 93 per cent of installed capacity. This was a first in almost a decade. Previously, IOC used to post a thruput which constantly exceeded 100 per cent of its installed capacity. The same story will possibly hold true for both Bharat Petroleum Corporation (BPCL) and Hindustan Petroleum Corporation (HPCL), the other two major refiners in the country which have constantly exceeded the 100 per cent mark in thruput capacity. In the first nine months of 2000-01, BPCL’s thruput was 4.1 million tonnes in relation to its annual installed capacity of 6.9 million tonnes. HPCL’s thruput from its Mumbai and Vizag refineries was 5.9 million tonnes as against 13 million tonnes of installed capacity. Clearly, there had been a distinct fall.

So, what went wrong in the previous fiscal? One major reason was the slowdown last year which had its fallout on petro-products. consumption. Another could be that shutdowns were unplanned and in some cases for longer than usual duration. However, in the view of experts, the biggest factor is Reliance Petroleum’s (RPL) 27 million tonne refinery in Jamnagar, Gujarat. The company’s products have to be marketed by IOC, BPCL and HPCL in the proportion of 2:1:1. With such a massive flood of products into the market and weighed down by the additional responsibility of marketing, there is little that the oil companies can do except to cut production.

The impact of this move on fuel and energy loss can well be imagined. The country’s refining capacity — prior to the commissioning of RPL’s refinery — grew by a mere 17 million tonnes between 1992-93 and 1998-99. IOC’s six million tonne Panipat refinery and the then 3.7 million tonne facility of Mangalore Refinery and Petrochemicals (MRPL) propelled this growth with the balance capacity increase caused by a process of debottlenecking in existing refineries. Within one year, overall refining capacity jumped by 43 million tonnes from 69 to 112 million tonnes. A large chunk of this came from RPL’s 27 million tonne facility with the balance accounted by the new three million tonne Numaligarh refinery and MRPL expanding by another six million tonne.

Doubtless, self-sufficiency in refining capacity was a welcome initiative except that the modus operandi of the government was absolutely inexplicable. For a start, the navaratna trio was asked, nay ordered, to market RPL’s products since the company did not have in place a retail infrastructure. On the face of it, this should not have been an issue considering that the marketing companies, including IBP, sell products of other stand-alone refiners: MRPL, Chennai Petroleum Corporation, Kochi Refineries and Bongaigaon Refinery and Petrochemicals. The difference here is that a single refinery — whose capacity is much bigger than HPCL and BPCL combined — now spews out products which are literally flooding the market. In this context mention must be made of recent media reports which suggest that the petroleum ministry has rejected a marketing joint venture proposal of IOC and RPL.

The two companies had worked on a plan where the new venture would retail RPL’s products as well as jointly examine investments in infrastructure. There is no indication why the ministry rejected the proposal though it is well known now that RPL could bag IBP’s 1500-odd outlets, which would provide an impetus to its marketing plans. RPL has also proposed to set up its own outlets once the administered pricing mechanism is dismantled in April next year. Given that the company has decided to work on its retail plans individually, why should the oil marketing PSUs be asked to lift its products for the next 11 months? Isn’t it only fair to expect them to have their own retail plans in place and start working towards that objective? At present, they are bogged down by their own constraints of checking thruput and having to market the products of a refiner merely because the government says so.

This is clearly unacceptable and it is time that there is a fixed set of rules for all players in a competitive market. The decision to spike the IOC-RPL joint venture plan also means that the responsibility for executing the Rs 4,500 crore Central India pipeline now lies with Petronet India through a joint venture company. There is no reason for IOC and RPL to jointly insist on a build-own-operate-transfer prerogative when the products of their refineries will be evacuated through this pipeline. The whole objective of free access to all interested users will fly out the window. When Petronet was created, the idea was to allow everyone to use a product pipeline instead of allowing it to be monopolised. It is important for the government to let it be known that it stands for fairness and equality especially when the survival of its own oil companies is at stake.

Mr Gopalan is editor of Auto Monitor, a Tata Infomedia publication.