Mumbai: The impending merger of state-run Hindustan Petroleum Corp. Ltd (HPCL) and Mangalore Refineries and Petrochemicals Ltd (MRPL) may put a break on MRPL’s fuel retailing expansion plans, leaving its parent Oil and Natural Gas Corp. Ltd (ONGC) to fulfil these ambitions through HPCL, said two officials aware of the development.

MRPL is a wholly owned subsidiary of ONGC and operates a 15 million tonnes per annum refinery in Mangalore, Karnataka. This January, ONGC acquired the government’s 51.11% stake in HPCL through an all-cash deal of 36,915 crore.

“MRPL has six fuel retail outlets. At best it can expand to a few more. But HPCL has 15,127 retail outlets. MRPL can never match that. Though MRPL is not competing with HPCL, in all probability, ONGC’s retail ambitions will be fulfilled with HPCL now onboard," said one of the officials mentioned above.

Post merger with HPCL, the fuel retail outlets of MRPL could be rebranded as HPCL’s. MRPL’s retail outlets are called HiQ, he said.

Currently, MRPL relies on oil marketing companies (OMCs) Indian Oil Corp. Ld, Bharat Petroleum Corp. Ltd and HPCL to market its products in the fuel retail space.

This results in lower offtake of products from MRPL with OMCs sometime preferring to bring in products from outside Karnataka to meet the state’s demand. As a result of this, MRPL is forced to rely on exports, resulting in marginally lower realization for the products.

“MRPL is setting up retail outlets within its span of influence and expects to overcome this weakness in the medium term. Expected synergies from the acquisition of HPCL, by the parent company, ONGC are also expected to mitigate the lack of retail penetration," said MRPL in its annual report for 2017-18.

MRPL entered the fuel retail segment in 2008 and till 2013 it had plans to roll out 120 fuel retail outlets in the first phase of its retail expansion strategy. The company has the approval to set up 500 retail outlets and its parent ONGC has an approval to set up 1,100 retail outlets. Setting up a fuel retail outlet, including the land cost, requires around Rs5 crore.

MRPL has gone slow on its retail plans as, like other OMCs, it was declined subsidy (compensation for selling fuels below market price).

“MRPL wanted to be a significant player in fuel retailing, but being a standalone refinery, which is not part of any oil marketing company, it does not get compensated by the government for selling fuel below market price. The company fears that in the wake of higher oil prices, the government may once again require the OMCs to share the fuel subsidy burden. This will render MRPL’s retail outlets uncompetitive," said the second official mentioned above.

Crude oil prices have climbed 11.5% and is currently hovering around $74.5 a barrel.