Kolkata: IndianOil is making steady progress in restructuring the ailing explosives manufacturing business of the merged IBP.
Having decided to wind up the cartridge explosive manufacturing facility at Korba in Madhya Pradesh, the downstream energy major has now struck a five-year agreement with Coal India Ltd (CIL) to supply bulk explosives.
The agreement will not ensure a profitable existence of seven out of 11 such manufacturing facilities for the entire tenure of the contract. The fate of the remaining units will depend on the market conditions. IOC has previously brought down the number of units from 14 to 11 due to non-availability of order at a remunerative price.
“CIL has selected IOC on nomination basis for supplying a part of their total requirement for the next five years. The agreement has left adequate elbow room for us to revise our prices on a cost plus basis during the tenure,” V.C. Agarwal, Director (IBP division), IndianOil told Business Line.
“The agreement ensures that seven of our bulk explosives manufacturing facilities will be operating profitably for the next five years. The fate of the residual four units will depend on order position,” he added.
Sources, however, told Business Line that considering the severe competition from smaller players IOC may have to close down the bulk explosive units, which are not covered by the existing supply contract with CIL.
When contacted, CIL source said that beginning 2008, the coal major had adopted the policy of entering into long-term contract for part-procurement of its essential supplies such as explosives, tyre and many others.
The policy was adopted to prevent any negative impact on production due to non-availability of essential materials.
The Rs 141-crore explosive business of IBP slipped in the red in 2006-07. The business was acquired by IOC during the merger of IBP with itself in May 2007.
Having decided to wind up the cartridge explosive manufacturing facility at Korba in Madhya Pradesh, the downstream energy major has now struck a five-year agreement with Coal India Ltd (CIL) to supply bulk explosives.
The agreement will not ensure a profitable existence of seven out of 11 such manufacturing facilities for the entire tenure of the contract. The fate of the remaining units will depend on the market conditions. IOC has previously brought down the number of units from 14 to 11 due to non-availability of order at a remunerative price.
“CIL has selected IOC on nomination basis for supplying a part of their total requirement for the next five years. The agreement has left adequate elbow room for us to revise our prices on a cost plus basis during the tenure,” V.C. Agarwal, Director (IBP division), IndianOil told Business Line.
“The agreement ensures that seven of our bulk explosives manufacturing facilities will be operating profitably for the next five years. The fate of the residual four units will depend on order position,” he added.
Sources, however, told Business Line that considering the severe competition from smaller players IOC may have to close down the bulk explosive units, which are not covered by the existing supply contract with CIL.
When contacted, CIL source said that beginning 2008, the coal major had adopted the policy of entering into long-term contract for part-procurement of its essential supplies such as explosives, tyre and many others.
The policy was adopted to prevent any negative impact on production due to non-availability of essential materials.
The Rs 141-crore explosive business of IBP slipped in the red in 2006-07. The business was acquired by IOC during the merger of IBP with itself in May 2007.
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