Reliance's managing director Anil Ambani said the position of RPL is quite safe as their contract with IOC has a caveat wherein if they do not reach an agreement with BPCL and/or HPCL, IOC would be required to sell the entire offtake from the production of Reliance Petroleum Ltd.

"Should either BPCL or HPCL declines to lift RPL's output, these quantities would automatically revert back to IOC," the agreement between the two companies says.Ambani said that this should dispel any doubt over RPL being unable to sell controlled products in the country during the transition period till the administered price mechanism (APM) lasts.

After the dismantling of APM in 2002, the proposed 50:50 joint venture with IOC for marketingthe products of RPL would see to it that there is no problem for selling the output from Jamnagar within the country.Ambani added: "Having invested over Rs 20,000 crore in the refinery project, we have the right to market our own products. It does not mean that we will invest Rs 10,000 crore in setting up a country-wide retail chain.

"It remains to be seen if IOC can absorb the entire output of RPL as it has already entered into a marketing agreement with Cochin Refineries and is as keen on forging a pact with Madras Refineries.

There is, however, another school of thought which believes that IOC could still hold its own if it were to accept Reliance Petroleum's entire output. With total product imports at 18 million tonnes, and with the maximum output from Reliance expected to be in the range of 14-15 million tonnes during the current fiscal, Indian Oil Corporation should not have any problem at least in the 1999-2000 fiscal, analysts added.

Considering the import-substitution effect, there would alsonot be substantial incremental sales of controlled products that would require large number of additional retail outlets to manage it during the transition period.Bharat Petroleum Corporation and Hindustan Petroleum Corporation both had earlier intimated to the petroleum ministry indicating their unwillingness to lift 25 per cent of Reliance Petroleum's output each as it could be a burden given their existing retail network.

Insight

IOC faces marketing problem

The only concern as far as Reliance is concerned is to keep on producing like a sole refiner, with assured off-take. The problem, however, is on IOC's side. Apart from entering into an arrangement with Reliance the public sector company has also entered into a similar agreement with Essar Oil. Total imports in the country was to the tune of 18 million tonnes, which was marketed by the four oil PSUs.

It will have to be seen how IOC manages to sell Reliance's production of 14-15 million tonnes during the year, with hardly any changein its marketing infrastructure.

Shishir Asthana