MARKETING: ANGER AT RELIANCE TIE-UP WITH IOC

Vol 2, PW 22 (11 Nov 98) Midstream & Downstream
     

For many, it was a deal too far.

On 28 October, the board of Indian Oil Corporation (IOC), Indias largest refiner, with an annual throughput of 27m tonnes a year (40% of Indias refinery capacity), approved two Joint Venture deals: with Reliance Petroleum and Essar Oil. In pure commercial terms, the deals are blindingly logical.

By late 1999, Reliance and Essar will jointly begin flooding the Indian market with a combined 28.5m tonnes of product from their greenfield refineries in Gujarat (Reliance: 18m t/y and Essar: 10.5m t/y). Production from the Reliance refinery will eventually touch 27m t/y.

Not surprisingly, IOC - with its extensive distribution network across India - was an obvious choice for Essar and Reliance to get their product to the customer. Politically, the agreement has drawn much hostility.

Critics argue IOC loses more than it gains from the "take-or-pay" agreement with Reliance and Essar. Indias Communist parties promise to scuttle the agreements.

Others hint at corruption within IOC, which helped push the deals through. An oil committee in parliament is believed to be scrutinising the agreement.

Some even speculate that the oil minister, Vazhapadi Ramamurthy, pressurised IOC to do a deal with Reliance, a charge with no evidence to back it and vehemently denied by IOC chairman, Mohammed Pathan.

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