Oil companies reject Sengupta report

Broadly, the Sengupta panel recommended that oil companies such as IOC transfer all their pipelines, except some strategic ones like those feeding crude into their refineries, to an independent entity such as Petronet. It also recommended that the Government8217;s equity in stand-alone refineries such as Cochin Refineries Limited CRL and MadrasRefineries Limited MRL be transferred to Bharat Petroleum 8212; its logic for doing this is that refinery margins are declining dramatically and that stand-alone refineries will not be able to survive on their own.

Sengupta has also recommended that Government equity above 26 per cent in IBP also be divested in favour of BPCL. It also says that, at some later date, the Government should seriously consider forming some sort of partnership between Bharat Petroleum, Hindustan Petroleum and IBP. This, it feels, will help counter IOC8217;s monopolistic position in the industry.

Interestingly, the stand-alone refineries also opposed Sengupta8217;s suggestion that they be made subsidiaries of BPCL, as they saw no particular advantage in this. It was pointed out that, unlike the world market, refinery margins in India have not plummeted, primarily because there is no excess capacity here 8212; given the tardy progress in setting up new refineries, no major surplus situation is seen in the next 10 years at least. Further,both MRL and CRL are planning to expand capacity to economic sizes, and would actually be larger in terms of refinery capacity than BPCL.

IOC officials, as expected, opposed the suggestion that they be asked to hand over their product pipelines, currently valued at over Rs 20,000 crore, to an entity like Petronet as they argued that this made no sense. Under the common carrier principle8217;, IOC was committed to carry every producers products 8212; this would also be reinforced by the Petroleum Regulatory Body that the Sengupta panel had asked for. IOC argued that if the Sengupta panel was asking it to give up its pipelines because it felt that the common carrier principle8217; would be violated and that other producers would be denied access to the pipelines, then even the so-called independent entity could be influenced to favour some and discriminate against others.

While the oil companies were expecting the government to come out with its rationale for reviving the proposal of Shell-Aramco to virtually buyout HPCL, today8217;s meeting did not throw any fresh light on the issue with ministry representatives preferring to keep quiet. The Shell-Aramco proposal, details of which were published in The Indian Express on March 30, essentially amounted to HPCL transferring one or all its refineries to a joint venture with Shell-Aramco; allowing this joint venture to use HPCL8217;s existing marketing network to market its products under a new logo. So, Shell-Aramco would get a readymade marketing network at a time when the private sector cannot enter the marketing set-up, and HPCL would get a warchest of cash to set up new outlets and expand/revamp its refineries.

IOC, it appears, has formally protested to the ministry, saying the proposal amounts to allowing backdoor entry of foreigners and giving them an unfair advantage over existing players. Moreover, it lacks transparency if indeed HPCL is to be sold off, then global bids should be called for from other majors. It is understood that it was because of this thatministry officials were not keen to discuss the matter at today8217;s industry meeting.