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THE SWAP
The Economic Times, 20 October 2000, reported that Reliance Industries entered into a swap deal for the export and import of 36 cargoes of naphtha over the next six months. Accordingly, three cargoes of 50,000 tonnes each were to be exported every month from Reliance Petroleum’s Jamnagar refinery and three cargoes of the same amount were to be imported to the Reliance Industries’ Hazira facility. The deal was done through Japanese traders Mitsubishi, Marubeni, ltochu, IdCmitsu and Shell. The export was done at around Arabian Gulf prices plus $22.
Reliance, needs petrochemical grade naphtha for its Hazira facility which is not being produced at Jamnagar. Therefore, its cracker at Hazira gets petrochemical grade naphtha from the international markets in return for Reliance Petroleum selling another grade of naphtha from its Jamnagar refinery to the international oil trade.
If RIL imports naphtha for Hazira petrochemical plant, the company does not have to pay the 24 per cent sales tax, which it will have to pay on a local purchase, even if it is from Reliance Petro. Besides Reliance Petro will also get a 10 per cent duty drawback on its crude imports if it exports naphtha from the refinery at Jamnagar.
The export of naphtha with Japanese traders is being looked as a coup of Reliance as it gives the company an entry into the large Japanese market.
Indian refineries have a freight advantage over the Singapore market and can quote better prices.
QUESTIONS
1. Examine the internal and external factors behind Reliance’s decision for
the swap deal.
2. What environmental changes could make swap deal unattractive in
future?
3. Could there be any strategic reason behind the decision to import and
export naphtha?
4. Should Reliance import and export naphtha even if it does not provide
any profit advantage?
Click here to Download Free Case Study Projects- http://www.managementparadise.com/mba-projects/free-case-study-download/
The Economic Times, 20 October 2000, reported that Reliance Industries entered into a swap deal for the export and import of 36 cargoes of naphtha over the next six months. Accordingly, three cargoes of 50,000 tonnes each were to be exported every month from Reliance Petroleum’s Jamnagar refinery and three cargoes of the same amount were to be imported to the Reliance Industries’ Hazira facility. The deal was done through Japanese traders Mitsubishi, Marubeni, ltochu, IdCmitsu and Shell. The export was done at around Arabian Gulf prices plus $22.
Reliance, needs petrochemical grade naphtha for its Hazira facility which is not being produced at Jamnagar. Therefore, its cracker at Hazira gets petrochemical grade naphtha from the international markets in return for Reliance Petroleum selling another grade of naphtha from its Jamnagar refinery to the international oil trade.
If RIL imports naphtha for Hazira petrochemical plant, the company does not have to pay the 24 per cent sales tax, which it will have to pay on a local purchase, even if it is from Reliance Petro. Besides Reliance Petro will also get a 10 per cent duty drawback on its crude imports if it exports naphtha from the refinery at Jamnagar.
The export of naphtha with Japanese traders is being looked as a coup of Reliance as it gives the company an entry into the large Japanese market.
Indian refineries have a freight advantage over the Singapore market and can quote better prices.
QUESTIONS
1. Examine the internal and external factors behind Reliance’s decision for
the swap deal.
2. What environmental changes could make swap deal unattractive in
future?
3. Could there be any strategic reason behind the decision to import and
export naphtha?
4. Should Reliance import and export naphtha even if it does not provide
any profit advantage?
Click here to Download Free Case Study Projects- http://www.managementparadise.com/mba-projects/free-case-study-download/
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