Why IOC so desperately wants to buy IPCL
Only now is it clear why Indian Oil Corporation (IOC) is so fiercely contesting its exclusion from the sale of the governments 25% stake in Indian Petrochemicals Corporation (IPCL).
The reason is purely commercial. IOC is scared of losing a substantial market for its naphtha.
IPCL buys on average 500,000 tonnes of naphtha from IOCs 9.5m tonnes a year (t/y) refinery at Koyali in Gujarat. As a state-owned company, IPCL is forced to buy from IOC but it pays above market rates for the privilege.
This is due mainly to a 21% sales tax imposed by the government of Gujarat. After privatisation, IPCL will be free of government control and able to buy cheaper naphtha on the open market.
IOC is worried and wants to maintain its position as monopoly supplier. Earlier this month (September) IOC formally commissioned a 3.5m t/y capacity increase at Koyali refinery from 9.5m t/y to 12.5m t/y.
It also has plans - subject to board approval - to increase capacity to a further 18m t/y. If IPCL - under new privatised management - looks elsewhere for its naphtha, IOC will be left with huge stockpiles, which it will have to sell abroad at distress rates.
No wonder the corporation is signing up a host of heavyweight names to lobby on its behalf to reverse the government's decision not to allow it to bid. The front-runners in the race to acquire 25% of IPCL are: Reliance Industries, Dow Chemicals, the Soros group and Mitsubishi Chemicals.
IPCL is Indias second largest producer of polymers after Reliance. It has three crackers: one naphtha-based at Baroda; one gas-based at Nagothane and a new gas-based one coming up at Gandhar.
On commissioning of Gandhar, its total annual polymer producing capacity will be 850,000 metric tonnes per annum.