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Reliance may pull out of IPCL race

BS Economy Bureau

Petrochemical giant Reliance Industries Ltd is likely to pull out of the race for Indian Petrochemicals Ltd even as two public sector undertakings, Oil and Natural Gas Corporation and Indian Oil Corporation, have decided in principle to jointly bid for the company.

The government, which holds 59 per cent stake in IPCL, plans to sell 26 per cent stake. The financial bids will be invited on April 29.

According to sources, Reliance's unwillingness to bid for IPCL was primarily because of the latter's inability to conclude a pricing arrangement with ONGC on the purchase of feedstock. A Reliance spokesperson declined to comment on the matter.

Nirma was also believed to be considering pulling out of the race, sources said.

Sources said although the contract between IPCL and ONGC for the purchase of natural gas was to be reviewed after March 31, 2001, no agreement had been reached till date.

ONGC has been insisting on compensation on the basis of "opportunity cost". According to this formula, one part of the cost was to be linked to a basket of international fuel oils and another to prices of propane or liquefied petroleum gas.

IPCL, on the other hand, contested the proposed methodology, arguing that the parameters on which the Nagothane complex was set up could not be entirely modified to its commercial advantage.

The present arrangement specified that IPCL would be paid a sum of Rs 3,693 per metric tonne, in addition to costs relating to capital charges on the Rs 484 million investment made by ONGC, increase in salaries due to wage revision, increase in gas price and corresponding royalty and increase in power prices.

Meanwhile, sources said the IOC and ONGC were working on a proposal to form a 50:50 joint venture for the bidding.

The two were deliberating on the structure and the nature of the partnership, ONGC sources said.

IOC last week sent a proposal to ONGC for roping in the country's highest profit-making company as a partner in bidding. The joint venture might take shape before financial bids were invited, sources added.

While IPCL is crucial to IOC for its foray into the petrochemical business, an essential offshoot of the refinery process, ONGC is interested in IPCL because it is the main feedstock supplier to its plants.

Sources said ONGC with its huge cash reserves of about Rs 100 billion could place an aggressive bid for IPCL.

IPCL, which posted a turnover of Rs 55 billion in 2001-02, marketed close to 1.5 million tonnes of petroleum products from its three plants in Nagothane, Gandhar and Vadodara.

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