Neverthless, the important thing from the company's point of view is that, they were able to manage some of its most pressing problems. It would of course, be some time before IPCL manages to compete on equal terms with Reliance. The company faced serious cost disadvantage when compared to Reliance. One of its serious problems was the 20 per cent higher price that the company had to pay for the the 5.5 to 6 lakh tonnes of naptha purchases.

This quarter IPCL has entered into contract with IOC to supply naptha at international prices. This wouldresult in a cost saving of Rs 90 crore.

This saving is apart from the Rs 90 crore saving that the company achieved after constructuring its own jetty for importing 50 per cent of its naptha supplies.

Coupled with the cost savings on the raw material front, the rise in the price of polymers saw the margins in the second quarter rising from 12 per cent in Q1 to 20.47 per cent in Q2. Polymer prices on an average were 7-10 per cent higher in the second quarter compared to that of the first quarter.

The other serious problem facing the company was erratic gas supply from ONGC. Now ONGC has agreed to build a new pipeline which would supply the natural gas to Gandhar phase 2. The cracker is expected to be commissioned in December this year. If the pipeline is completed by that time, the company's cost structures would be drastically reduced by around one fourth for the Gandhar phase 2 unit. Today the company is using a combination of propane with LPG. Apart from cost of this raw material being four timeshigher the yields are half of what the plant would get if gas is supplied.

The other problem relates to low yields at the Baroda cracker. Analysts estimate the yields at the Baroda IPCL plant to be 0.26-O.27 in comparison to yields of Reliance being in the range of 0.33 to 0.34. (Yield refers to the output of ethylene from the cracker). But with Gandhar phase 2 cracker expected, the total average yields would rise.

Although the present rally in prices of polymers (contributing 67 per cent of IPCL's total business) is temporary, at the present level of polymer prices the company would be able to wipe out the complete losses in third quarter.