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Thursday, February 11, 1999

Bharat Petroleum, IBP all set to sew up product assistance agreement 

Murali Gopalan  
Mumbai, Feb 10: Bharat Petroleum Corporation and IBP are close to finalising a unique product assistance agreement, which will mark the beginning of a long-term relationship in the oil sector.

Top sources said that the deal envisages three main areas of activity which are:

  • Import of products by BPCL on behalf of IBP.

  • Purchase of BPCL's products by IBP at refineries, installations, tap-off points (TOPs) and depots and vice-versa.

  • use of BPCL's infrastructure at installations, TOPs and depots by IBP for storage and handling of products.

    The products covered under the agreement include motor spirit(MS), high speed diesel (HSD), superior kerosene oil(SKO), light diesel oil(LDO), furnace oil(FO) and low sulphur heavy stock(LSHS). Sources have indicated that to help IBP in storage of packed lubricants at BPCL locations, separate agreements will be drawn up between the two companies. BPCL, in turn, will extend storage facilities for lubricants to IBP at all their locations, subject toadequate space available to keep their stocks segregated.

    Likewise, separate agreements are expected to be finalised, where IBP will be given help for other petro-products, including liquefied petroleum gas (LPG).

    Interestingly, sources add, though the present arrangement envisages assistance to be extended by BPCL to IBP, the converse can also be worked out with similar terms. The two companies would also identify mutual areas of interest, which would include training of staff, use of BPCL's information technology and software development, exposure to international trade, upstream and downstream activities and marketing interest in related fields, fuel supplies to independent power producers to whom linkages have been given by the ministry of petroleum and natural gas and other new business opportunities inclusive of joint venture/partnership proposals.

    The IBP-BPCL agreement, which is an indication of the gradual change in the petroleum sector, will be of enormous help to both companies. BPCL'sbiggest strengths are in marketing, with its over 4,500 retail outlets spread across the country. IBP is a stand-alone marketing company, which has around 1,500 outlets and is especially strong in the northern region of the country put to best use in some locations where the consumer will be the eventual beneficiary. It is also logical, in the opinion of experts, that the duo operate together, given that they are already partners in the three million tonne Numaligarh refinery project to be commissioned shortly in Assam.

    BPCL is the main promoter of the project with a 32 per cent stake with IBP holding 19 per cent. Ten per cent will be accounted for by the government of Assam with Oil India tipped to pick an identical stake shortly. The refinery was originally to be promoted by IBP with 51 per cent till BPCL entered the picture four years ago.

    "It is a perfect relationship and involves two companies which understand each other well," sources say. In fact, a committee headed by Nitish Sengupta of the OilCoordination Committee is also believed to be of the view that a long term restructuring plan of the downstream sector should necessarily involve a marriage of BPCL and IBP along with other stand-alone refiners.

    Interestingly, the top brass of IBP had suggested a proposal on similar lines to the committee based on the model followed by the Steel Authority of India and Coal India. This would involve formation of a holding company and different subsidiaries.

    The subsidiaries would be BPCL, IBP, Numaligarh Refinery and other standalone refinery (ies). The holding company would be a conglomerate of all the entities. It would have a non-executive chairman, managing director with executive powers as also representatives on the board of directors from the different oil companies.

    IOC, HPCL may follow suit

    IBP's agreement with BPCL could pave the way for the other two marketing giants -- Indian Oil Corporation and Hindustan Petroleum Corporation -- to plan similar formal tie-ups with the stand-alonemarketing oil company. This could result in an arrangement where specific locations in the country would be identified for joint retail skills to be optimally used. For instance, IBP is strong in the north and would consider joining hands with IOC here, while confining to the southern part with BPCL. Today, the situation is different with around 80 per cent of IBP's retail trade supplied by IOC and the balance taken up by BPCL and HPCL. It is likely that either IOC or HPCL could offer more competitive/attractive terms to IBP which could even result in a tilt in priorities by the latter to a particular company. A long term picture is likely to emerge which could see IOC and BPCL (and possibly HPCL) contributing product equally to IBP's outlets. Whether this will have an effect on the Sengupta committee's recommendations remains to be seen.

    Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.


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