‘We can process 170 types of crude oil today’
New Delhi 03-Aug-2015
B. Ashok, Chairman, IndianOil
Plans afoot to set up a refinery on the West coast, says IndianOil Chairman
Indian Oil Corporation is looking at a rather strong first quarter on the back of a consistent domestic retail fuel pricing policy by the government, low oil prices and its own financial jugglery.
With better gross refining margins, upgrading of existing refineries, the setting up of a new one (Paradip), and a sharper focus on its gas business and pipeline network, the company is once again gearing up to beat the competition, said B Ashok, its Chairman. Edited excerpts from an interview with BusinessLine:
How do you counter the constant refrain that Indian Oil is not spending enough to upgrade its refineries, process cheaper crude, and improve refining margins?
I would like to clarify that we have been constantly upgrading our refineries. If you look at our capability today to process different types of crude, this is because of upgradation.
We have been consistently spending money. Plan after plan our expenditure has only been increasing. We should be close to achieving the 12{+t}{+h} Plan target. In fact we will go over the capital expenditure target of Rs. 56,200 crore. With two years left, we have already crossed Rs. 40,000 crore.
We have also spent on a Greenfield refinery at Paradip, which is close to commissioning. Money has also been put in to improve fuel quality. India will be completely covered with BS IV by April 2017. All this meant that the oil industry has to upgrade technology.
Of the total capex for the 12{+t}{+h} Plan, how much is for upgrading refineries alone?
Broadly, about 50 per cent is going to refineries, which includes both upgradation and quality product implementation. In every refinery there is a quality upgradation project, which is ongoing. In the next phase, when we go for Euro VI (BS VI), we will combine it with brownfield expansions.
Does this mean your GRMs will be as good as your private counterparts?
Refineries in India, which include the private ones, have shown the world that if you increase your capabilities to process multiple types of crude then you are in a better position to take advantage of the market (in terms of product availability and pricing). In terms of average complexity, if you include all the private sector refineries, India ranks very high if not the highest in the world.
If you see Indian Oil’s basket, we can process 170 plus varieties of crude today. At any point of time we should have some 40 sources, which include West Asia, South-East Asia, Latin America, Africa, and some CIS countries also. This has improved our flexibility.
As regards GRM (gross refining margin), the first quarter has been relatively good. The figures will be out soon and we are pretty optimistic.
Are you buying Iranian crude also? Is Iraq still your main supplier?
We were buying Iranian crude to a limited extent. Of course, the new developments (the nuclear deal) have provided a scope for increased supply. But, these developments will not happen overnight. So, we will have to wait and watch as to how things pan out. For Indian Oil, at the moment, the maximum is from Iraq.
Have you reworked your crude procurement process?
Between last year and this year we have increased our flexibility to process spot crude by reducing terming (term contracts) quantities from 80 per cent to 70 per cent. If you do too much of terming then the schedules are all fixed and the carriers carrying these quantities will come to the port, thus, closing any pricing opportunities available. A key thing that we have done in our procurement process for spot is that we have shrunk the window of our tenders.
Till the middle of last year, we were taking almost 36 hours to process. We have now reduced it to 12 hours. It is helping us in terms of bringing the cost down by a few cents in our procurement. For both product imports and crude imports, we have done this shrinking.
Besides Paradip, are you looking at another new refinery?
We are evaluating a West Coast refinery (the only region IOC does not have a refinery). Setting up a refinery is not something that happens overnight. We have studied the demand and also looked at scenarios of substitute as well as alternate fuels that can come in. Based on certain assumptions we feel that there is a need for another refinery.
At the retail level have you revived your branded fuels?
Branded fuel is picking up again. We have reintroduced it. Close to 14-15 per cent of our overall sales were coming from branded fuels (earlier). Subsequently, because of the duty structure — the excise duty being higher for branded fuels — sales almost went down to zero. But, during that time we kept marketing additives separately for discerning customers who wanted fuel outside the conventional commodity fuel.
But now that duties have been rationalised and the price difference has come down, we have relaunched branded fuel because the infrastructure is already available. It is picking up.
