"We'd rather face competition than continue in the current situation"
New Delhi   17-Jul-2007
As international crude oil prices inch closer to the $80 a barrel mark, Indian oil-marketing companies are in an unenviable position. With retail losses mounting, it is time, once again, to start lobbying the ministry of petroleum for permission to hike petrol and diesel prices. The prices for automotive fuels, LPG and kerosene are administered by the government, and the public sector companies are compensated for the loss through oil bonds and subsidised crude from sister oil companies. Over the past year, the private sector has all but dropped out of the race. How have these developments impacted India’s largest oil refining and marketing company, IndianOil? The company recently became the first Indian corporate to breach the Rs. 2 lakh crore turnover mark. In a freewheeling interaction, IndianOil's <b>Chairman, Mr. Sarthak Behuria </b>spoke about living in the era of high-oil prices, in a controlled price regime and its impact on IndianOil’s future plans. <b>Aren’t public sector oil companies in a comfortable position? Competition from the private sector is virtually eliminated and the oil bonds are like a hedge against high global oil prices. </b> You must understand that we are not comfortable with the current scenario. We’d rather face competition than continue in the current situation with so much uncertainty. This is definitely not a happy situation. IndianOil today controls about 53% of the automotive fuel market; at the most we may have lost some of this share if the private sector was active in the market. But our marketing margins would have been much higher. What is worse, we are never completely sure that we will continue getting the bonds. Parliament has to approve the issue each time. Also, because of the current situation PSU Oil Company stocks have a poor valuation on the stock markets. Of course, the ground reality is that the current situation (of controlled pricing) may not change in a hurry. We are absolutely focused on the domestic markets while Reliance Industries goes for exports. We have a surplus in some petroleum products like Naphtha, since most of the users are moving to using natural gas. Even these exports are largely to markets in the east. <b>Earlier this month, IndianOil was edged out by a Kazakh-Russian oil company in the final round of bidding for the Turkish company Petkim. You also have a stake in the Ceyhan pipeline. Why do you focus on Central Asia? </b> We have begun our international forays more than a decade after others. Acquisition now is much more expensive than ever before. In the Petkim case, the TransCentral Asia Petrochemical company was much more aggressive because the refinery was a strategic fit for them. They finally won the bid with an offer of $2.05 billion, while we saw no reason to go that high. The reason for the central Asia focus is that projects like the pipeline offer an opening to the CIS countries and beyond. Besides we also want to diversify beyond the standard West African and Arab Gulf mix that forms a bulk of our crude now. We are already diversifying our crude mix to include Azeri crude. <b>The refining industry has done well in the past few years. What are your plans on oil refining? </b> Refining margins are currently extremely high — almost $8-9/bbl. Full year margins are likely to be $5.5-6/bbl. We are planning a total investment of Rs. 50,000 crore in oil refining over the next five-year plan. This will be spent on four major projects — the naphtha cracker at Panipat, the greenfield refinery at Paradip and in the up gradation projects for Haldia and Gujarat refineries. Automotive fuel consumption in India is growing by 8% to 10% every year. Adulteration has come down and sales have improved. <b>IndianOil has made substantial investments in petrochemicals over the past few years. What’s happening on that front? Many industry watchers say the petrochem cycle has peaked and prices could now start to fall. By that measure, what do you feel about the timing of your investments? </b> Predicting the petrochem cycle is like predicting the weather. You cannot predict where prices are going, but it makes strategic sense for us to go downstream. Our biggest project — the naphtha cracker at Panipat — is on course and will be complete by 2009-10. Most of the contracts for the project have already been awarded. This will allow us to manufacture up to 1 million tonnes of plastics and other products. Last year, we completed the 5.5 lakh tonne PX-PTA plant at Panipat and this will be the first full year of operations. The four-lakh tonne plant for manufacturing LAB has been in operation for over an year and we now have a 25% market share in India. The entire production is being sold to three customers. In terms of turnover, this would be Rs. 4-5,000 crore, which will not make a significant impact on the top line. <b>What are the major challenges facing IndianOil today? </b> Because of the global upswing in the commodities business, there is a huge shortage of resources — in terms of construction, engineering equipment and people. Lead-time for equipment deliveries for our refinery is getting longer. Finding and retaining talent is also a real problem. The major crunch for us is for project management and field marketing jobs. There is a very high level of attrition. Apart from fresh recruitment we are trying to get some retired people back for some of these projects. IndianOil plans to hire about 500 freshers as management trainees this year.