Jan. 11 (Bloomberg) -- Hindustan Petroleum Corp. plans to buy fuels from Indian rivals Essar Oil Ltd. and Mangalore Refinery & Petrochemicals Ltd. to curb imports.

India's second-biggest state-run refiner will buy gasoline and diesel to plug a shortage of about 5 million metric tons of fuels in the year starting April 1, S. Roy Choudhury, director for marketing, said in an interview. That's equivalent to about 30 percent of its refining capacity.

``We will import whatever we are not able to source from these two refineries,'' Roy Choudhury said in Mumbai yesterday. ``We don't have enough refining capacity to meet demand at our outlets.''

Sourcing fuel from Essar, India's newest refiner, will lower imports to Asia's third-largest oil consumer, cutting margins for gasoline and diesel in the region. An auto boom in the world's fastest growing major economy after China is boosting fuel demand and prompting Hindustan Petroleum, Essar and Reliance Industries Ltd. to add refineries.

``Fuel demand in India will rise as more smaller, cheaper cars start rolling out,'' said Rohit Ahuja, analyst, at Mumbai- based J.M. Financial Ask Securities Ltd. ``That's encouraging new refineries to come up and existing ones to expand to meet demand.''

New Refinery

Mumbai-based Hindustan Petroleum is building a $3 billion plant jointly with billionaire Lakshmi Mittal. Reliance, which owns the world's third-biggest oil refinery, plans to expand its plant to be the world's largest. Essar, India's newest refiner, plans to spend $6 billion on more than tripling capacity to 34 million tons a year.

Hindustan Petroleum expects to sell about 21 million tons of fuels in the year ending March 31, Roy Choudhury said. The company has the capacity to produce 16.6 million tons, leaving a deficit of about 4.4 million tons. With fuel demand rising, the shortfall will increase next year.

Demand for gasoline and diesel may grow by more than 7 percent for the second straight year, Roy Choudhury said. Hindustan Petroleum is targeting a 20 percent increase in sales at three quarters of its 8,000 gas stations.

Hindustan Petroleum plans to build about 300 low-cost stations and 180 regular outlets along highways, he said.

Indian Oil this week said it will build 1,000 outlets next fiscal year to meet growing demand for auto fuels. General Motors Corp., the world's biggest automaker, on Jan. 9 estimated sales in India may increase 50 percent this year.

To contact the reporters on this story: Archana Chaudhary in Mumbai at achaudhary2@bloomberg.net; Manash Goswami in New Delhi at mgoswami@bloomberg.net.

Last Updated: January 11, 2008 06:31 EST