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Murali Gopalan
Mumbai, Sept 20: Indian Oil Corporation (IOC) is evaluating the possibility of teaming up with either Dow Chemicals, Mitsubishi or the Soros group to buy out the Centre's 25 per cent stake in Indian Petrochemicals Corporation (IPCL). All the three multinationals are among the interested bidders for IPCL along with Reliance Industries.
IOC's move is consequent to the petroleum ministry disallowing the PSU from bidding on its own for IPCL. The Fortune 500 company is now of the opinion that it makes sense to make a joint offer so that it does not lose out in the race. The key here is naphtha from IOC's Koyali refinery which has a ready market in the form of IPCL.
"This is extremely crucial to IOC's interests and it would also be to IPCL's advantage to continue this arrangement," sources said. Talks with the three global companies are at a preliminary stage and it remains to be seen if they are open to the IOC offer. The greatest advantage accruing would be the combined financial strength which couldtranslate into an attractive bid.
Present indications are that Reliance Industries is the favourite contender for IPCL though experts reiterate that it is too early in the day to write off the other three in the race. Equations could again change considerably once one of them partners IOC in the bidding process.
IOC had written to the ministry of petroleum and natural gas reiterating that there was no reason why it should be disqualified from the bidding process for IPCL. The company stated that when some multinational oil majors were allowed to withdraw midway, there should likewise be no problem if a new bidder entered the fray.
The Government will offer 25 per cent of its stake in IPCL to the successful bidder along with management control in the corporation. However, it will continue to retain 26 per cent, a clause that has apparently not gone down too well with some of the interested companies.
There have been unconfirmed reports which suggest that the Centre could even consider a complete exitfrom IPCL if induction of the strategic partner results in significant value-addition overall. Experts believe that IOC is best equipped to team up with IPCL as a strategic ally as it would cater to the latter's requirement of feedstock.
The two have only recently entered into a memorandum of understanding to work jointly in petrochemical and refinery projects both here and abroad. A beginning has already been made in Panipat where IOC has planned a petrochemicals complex while similar plans are on at Nagapattinam in Tamil Nadu. The two PSUs are also exploring the option of setting up a refinery in the middle-east.
IOC recently agreed to cater to imports of naphtha on behalf of IPCL for its Baroda complex. The two PSUs have entered into a ten-year pact for this purpose and observers say this will translate into significant cost savings for IPCL.
"It is a good business deal which clearly indicates that PSUs can work in tandem instead of merely competing with each other," sources say. Prior to thisagreement, IPCL would import around 2.4 lakh tonnes of naphtha on its own which, in turn, constituted 40 per cent of its Baroda plant's needs.
In the future, this will be increased to 4 lakh tonnes or 70 per cent of the total naphtha requirement of the complex. The greater need will be a fallout of capacity expansion at Baroda and now with IOC stepping into the picture, experts say IPCL will stand to save over Rs 1,000 per tonne of naphtha imported.
It was more than five years ago when a working group presented a proposal to the ministry of petroleum and natural gas suggesting a strategic alliance between IOC's Koyali refinery and IPCL's Baroda complex. However, there was some resistance to the idea and unconfirmed reports indicated that IOC was not ready to accept it as the Gujarat refinery was "its jewel in the crown".
INSIGHT
Move will give IOC shot in the arm
If IOC manages to rope in a foreign partner to pick up government's stake in IPCL, the team will be giving othercontestants a tough time. Apart from the high level of synergy between IOC and IPCL, the team will have the financial muscle of the foreign partner as well as its technological acumen.
As far as the foreign players are concerned, it makes sense for them if they team up with IOC. The only issue that could pose a problem will be that of who will control the company (IPCL). However, it has to be seen wether the petroleum ministry allows this move of IOC to bid for IPCL.
Shishir Asthana
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
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