BackMRPL may get greater say in ONGC Petrochemicals plant
Greater integration is expected to help MRPL raise refining margins and save tax
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Mumbai: Greater chemistry is on cards between South India’s largest petroleum refiner and a petrochemical complex right next door in which it holds a minority stake, thanks to the efforts of the common parent of both companies that wants to foster greater synergies.
Mangalore Refining and Petrochemicals Ltd (MRPL) may get to have a greater say in the operations of ONGC Mangalore Petrochemicals Ltd (OMPL), in which it holds a minority stake, said one official each from MRPL and Oil and Natural Gas Corp. Ltd (ONGC), the majority owner of both MRPL and OMPL.
Greater integration is expected to help MRPL raise refining margins and save tax, while helping OMPL make better use of MRPL’s efficiency.
Reports in July had said that ONGC was planning to merge MRPL and OMPL, but the executives mentioned above said it was just one option—the other being a restructuring of OMPL’s operations and shareholding.
Currently, ONGC holds 46% in OMPL while MRPL holds only 3%. The balance equity is yet to be allotted.
“The plan, which is yet to be discussed in the company’s board, will either see MRPL increasing its stake in OMPL or a restructuring of the shareholdings of ONGC and MRPL wherein the latter will pick up ONGC’s stake in OMPL. This will offer synergies in operations and tax benefits to MRPL," said one of the executives aware of the discussions.
The OMPL plant, often called the aromatics complex, draws most of its feedstock from the adjacent MRPL refinery. The complex uses naphtha from MRPL to produce paraxylene and benzene, which are used in the manufacture of purified terephthalic acid (PTA), dimethyl terephthalate (DMT), and products such as styrene, polystyrene, phenol and nylon. PTA and DMT are, in turn, widely used to make polyester fibres and plastic bottles, besides dyes, resins and pesticides. Other products from the OMPL stable include liquefied petroleum gas (LPG), fuel gas and hydrogen.
“OMPL is an ultra-modern state-of-the-art plant," said the first executive from ONGC. “It has faced only 10% cost overrun and saw a minor delay of six months in commissioning. Besides, production ramp-up has happened quite rapidly. It is the best time to create synergies between MRPL and OMPL, which will add to the overall value of both the projects," the executive said.
A mail sent to ONGC on Monday remained unanswered.
Citing the benefits of close integration, the second executive, from MRPL, said OMPL will lose its cost advantage if it has to bring the feedstock from elsewhere. Including naphtha, OMPL currently uses 14 products from MRPL. It may also start drawing water and hydrogen from MRPL. Therefore, he said, it will be a win-win for both if MRPL has a majority holding in the company.
“MRPL supplies 70% of the feedstock requirement of OMPL and both the plants are located very near to each other, therefore, it makes sense to ensure further integration between the two," said the ONGC executive. He said the integration with OMPL will help MRPL save tax, increase value addition of its output and ensure greater margins. This may also raise MRPL’s refining margins and help it come out of losses, he added.
MRPL, which used to enjoy higher gross refining margins (GRMs) than its peers such as Indian Oil Corp. Ltd, Bharat Petroleum Corp. Ltd and Hindustan Petroleum Corp. Ltd, has been slipping of late. According to an October 2014 report by the Petroleum Planning and Analysis Cell under the oil ministry, in the last three fiscal years, MRPL posted an average GRM of $3.57 per barrel against $3.68 for Indian Oil, $4.15 for Bharat Petroleum and $2.63 for Hindustan Petroleum. So far in the fiscal till September 2014, it posted a negative margin of $1.79, driving the company to a ₹ 987.57 crore net loss for the first six months of the fiscal.
MRPL’s 15 million tonnes per annum refinery is currently in the last leg of a ₹ 12,160 crore expansion to make mainstream petrochemicals such as polypropylene, widely used in packaging and textiles. Without giving specifics, the MRPL executive said that once the expansion is complete, OMPL could use more of MRPL products. If MRPL has a majority holding in OMPL, the latter can gain from its efficiency, he said.
Neither of the executives could put a number to the actual cost benefits for MRPL with higher integration.
A 17 November report on MRPL by brokerage ICICI Securities Ltd, said: “The physical progress of polypropylene unit is 97% and is expected to be mechanically completed during Q3FY15 (third quarter, fiscal 2015). Higher complexity on commissioning of Phase III project will lead to an increase in distillate yield from 76.5% to 80.1%, better capability to handle heavier and sourer crude and production of higher margin value-added products."
The 442-acre OMPL aromatics complex in the Mangalore Special Economic Zone was built at a cost of ₹ 5,750 crore. The plant started operations in October 2014 and it utilization rate has since been scaled up to 80% in the last two months.
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