IOC drops plans to merge Chennai Petroleum with itself

New Delhi: State-owned Indian Oil Corporation (IOC) has dropped plans to merge its subsidiary Chennai Petroleum Corp Ltd (CPCL) with itself, a top company official said.

IOC holds 51.89 percent stake in CPCL and had planned to merge the company with itself like it had done with another subsidiary, Bongaigaon Refinery and Petrochemicals Ltd (BRPL), more than a decade ago.

But unlike BRPL, CPCL has National Iranian Oil Co (NIOC) as a shareholder with a 15.40 percent stake. IOC was hoping that NIOC may not invest in expansion of CPCL, giving the state-owned retailer a reason to seek the Iranian company's exit.

"They (NIOC) have decided to participate in setting up a new 9-million tonne per annum refinery at the Cauvery basin, Nagapattinam, at an estimated cost of Rs 27,460 crore," he said here.

The Iranian company wants to stay invested in CPCL, he said. "We won't like to merge till they are there. If we were to merge CPCL with IOC under the present shareholding, NIOC would get a stake, although small, in IOC."

NIOC holding a stake in IOC would be "risky proposition" in view of threat of US sanctions on Iran and its state- controlled firms, he explained.

If NIOC was to attract sanctions, IOC risks being exposed to actions by the US by virtue of its shareholding in the company.

"We won't like to be exposed to any such thing (sanctions)," he said.

While CPCL does not have any international exposure that may threaten its business in case NIOC is sanctioned, IOC has major dealings with the US including recent buying of US oil.

NIOC holds a 15.4 percent stake in CPCL through its Swiss unit, Naftiran Intertrade.

IOC was keen to merge CPCL with itself as viability of a stand-alone refinery in the current scenario was questionable.

CPCL is a stand-alone refinery, operating a 10.5-mt unit at Manali in Tamil Nadu and another 1 mt plant at Nagapattinam.

It had been through rough times in recent years and was even reported to the Board for Industrial and Financial Reconstruction (BIFR) in 2014-15 due to an erosion of more than 50 percent in its net worth to Rs 1,655 crore.

CPCL managed a turnaround last fiscal with a profit of Rs 1,029.75 crore.

CPCL, formerly known as Madras Refineries Ltd, was formed as a joint venture in 1965 between the Government of India, AMOCO and NIOC having a shareholding in the ratio of 74 percent, 13 percent and 13 percent, respectively.

In 1985, AMOCO disinvested, following which, the government held 84.62 percent and NIOC 15.38 percent.

The government later disinvested 16.92 percent of the paid-up capital. The company was listed in 1994.

IOC acquired the government stake in 2000-01 and holds 51.89 percent stake in CPCL while NIOC has 15.40 percent.