RIL buys GAPCO to flag off its African safari

RIL buys GAPCO to flag off its African safari
5 Sep, 2007, 0200 hrs IST, TNN

MUMBAI: Reliance Industries (RIL) has agreed to buy a clutch of fuel stations and storage facilities in one of the fastest growing regions in Africa, in an attempt to build a complete business chain from refineries to fuel stations in overseas markets.

Reliance, which has traditionally been chary of buying overseas assets, said on Tuesday that it will buy a majority stake in Gulf Africa Petroleum Corporation (GAPCO) for an undisclosed amount.

The acquisition will give it about 250 fuel stations and storage terminals in Tanzania, Uganda and Kenya, three of East Africa’s fastest-growing economies.

Apart from servicing local customers in the three countries, GAPCO’s storage terminals will help Reliance supply and trade fuel products with industrial customers on the east coast as well as southern Africa.

“Acquisition of GAPCO is a strategic step towards achieving its global vision in the petroleum downstream sector by integrating the entire value chain consisting of refining, shipping, trading, terminalling and marketing through retail and wholesale segments,” a Reliance statement said.

GAPCO is Reliance’s second-major overseas acquisition after it purchased speciality polyester maker Trevira for about $80 million in 2003. India’s largest private sector company has adopted a low-key approach towards large overseas buys, but the latest move gives some clues about its strategy.

“Eastern Africa is a net importer of petroleum products. It is a natural home for our products considering the close proximity. The acquisition will help us add value and make us an integrated player in an overseas market,” said Reliance Industries executive director Hital Meswani said.

Reliance is now building a 5,80,000 barrel per day refinery in Jamnagar, its second in the bustling port city on the western coast. The fully export-oriented refinery is expected to begin production by December 2008. The start-up will make Jamnagar the world’s biggest refinery zone with the ability to process 1.2 million barrels of oil every day.

Starting some time early next year, Reliance plans to export a substantial part of its production from Jamnagar to the newly-acquired fuel stations in East Africa. This will help in creating an integrated chain that already exists in India.

But unlike the home market where heavily subsidised fuel prices act against the interests of private sector players, the market in Africa’s east coast is free.

“Prices there are set by market forces. The fuel consumption is going up in line with the GDP growth,” Mr Meswani said. Government subsidies to public sector companies have robbed private players such as Reliance and Essar of market share and caused steep losses in the petroleum retail business.

Reliance changed tack to tap the export market ever since it became clear that government policies were not going to change. The commissioning of the refinery in December this year will strengthen Reliance’s position as one of the biggest refiners in the world. The firm plans to use its large product base and its experience in shipping and logistics to tap retail customers in many parts of the world.

Acquiring GAPCO will help fulfill that strategy in east Africa. Mr Meswani added that the company is looking to acquire more overseas assets, especially in retail. “It does not matter whether you have refineries in multiple countries,” Mr Meswani added. Retail assets such as fuel stations and storage terminals may matter more, he added.

Apart from retailing, Reliance could also use its storage terminals to trade in petroleum products. Large industrial buyers on the east and southern African coast could now queue up outside Reliance’s door, instead of buying from the politically volatile Middle East or from the equally explosive Nigeria.

Mr Meswani did not say whether Reliance will change the name of the company or its fuel stations to reflect the new ownership. RIL shares rose 0.82% to Rs 1,971.50 on Tuesday. The shares have risen 4.86% over the week and 9.45% over the month.