The operating profit was Rs 80.04 crore (Rs 493.01 crore), interest Rs 236.96 crore (Rs 342.83 crore) and depreciation Rs 142.76 crore (Rs 134.45 crore). Managing director of MRPL, Jagdish Mehta told The Financial Express that the poor showing was on account of the lower margins between the global prices of crude and products. Prices of products also did not keep pace with crude prices, now at $30 a barrel, which also affected refining margins.

Mehta said unless there was some duty protection for private stand-alone refineries, there was no way they would be able to hold their own in an era of market-determined pricing. According to him, crude buying by MRPL was also open to risks and the only way margins could be protected was to hedge these purchases.

MRPL has been hit equally hard by the lopsided duty structures on crude and finished products. To encourage new investments in refining, the deregulation process envisaged duty protection of ten per cent in 1999-2000. In reality, however, the effective duty protection is only six per cent since customs duty for products like liquefied petroleum gas (LPG), naphtha and kerosene is less than that imposed on crude.

Hence, Mehta said, stand-alone refineries like MRPL were facing hard times in addition to a heavy burden of high depreciation and interest costs. He suggested bringing in a differential tariff for new refineries and warned that unless quick remedial measures were taken at the policy level, things could turn from bad to worse. Observers wonder why MRPL has been incurring losses at a time when other stand-alone counterparts in the public sector have put up a better performance.

A major reason, they say, can be attributed to the fact that the company has been urging co-promoter, HPCL, to share marketing margins on products lifted from its refinery. MRPL has indicated that it is losing out badly on refining margins and must make up through some gains on marketing to improve its financial health.

Experts say that the company's request is legitimate as both IndianOil and Bharat Petroleum Corporation share marketing margins with their stand-alone refining allies like Cochin Refineries (now Kochi Refineries) and Madras Refineries (rechristened Chennai Petroleum Corporation).

"If HPCL does not accede to MRPL's request, the company could think of alternative strategies like seeking other marketeers like IOC and BPCL," sources say. There have also been unconfirmed reports that MRPL is considering a formal "take-or-pay" agreement with HPCL on the lines of what stand-alone counterparts like Reliance Petroleum (RPL), CRL and MRL have drafted with their marketing allies. MRPL is a joint venture of HPCL and the Aditya Birla group of companies. It is a stand-alone refining company which is reliant on HPCL for marketing of its products. The retail trade is a big money spinner and this has prompted MRPL to ask HPCL for a share of its marketing margins.

HPCL picks MRPL MD Dinesh Mehta, general manager of HPCL's Mumbai refinery, will be his company's nominee as managing director of MRPL and will hold joint charge with Jagdish Mehta. He takes over from MA Tankiwala who, after barely 18 months, has been asked to head HPCL's nine million tonne Punjab refinery project estimated to cost Rs 10,000 crore. Prior to Tankiwala, SK Mukherjee was HPCL's nominee who was again recalled to the Mumbai refinery after a brief tenure of around 15 months. Each of these candidates could have actually held on to their posts for five years in the past.