IndianOil wants to process heavier, cheaper crude
New Delhi 04-Jan-2013
With India becoming a regional refining hub, there is constant need to invest in refinery upgradation to help turn heavier and cheaper crude into fuel, says IndianOil.
R. S. Butola, Chairman of the country’s biggest refiner-cum-retailer, IndianOil, told Business Line that “there is a constant need for investing, even if we do not set up new refineries. We need to upgrade our refineries to make them capable of processing newer and heavier crude. This would also mean processing cheaper crude.”
The public sector refiner has invested substantially to process high sulphur crude in the first phase, Butola said, adding that in the second phase, the company was looking at upgrading itself to process heavier crude.
Sour and sweet crude
Sulphur content in crude oil is a key determinant of quality and is measured as a per cent of weight. Crude oil grades that are high in sulphur are referred to as sour crude, and those that are low in sulphur are referred to as sweet crude. The higher sulphur content affects the quality of the resulting refined products and sometimes means extra processing is required.
“Since there are existing refineries (IndianOil has eight standalone refineries), we cannot revamp completely. We are processing 10-11 per cent of heavy crude and want this to go up to 30 per cent of our total crude basket in the next three-four years,” Butola said.
The company has planned an investment of Rs 56,000 crore in the existing refineries during the 12th Plan.
But, even for this investment, the company needs to remain profitable, Butola said.
Revenue loss
IndianOil and other public sector refiners-cum-retailers, Bharat Petroleum Corporation and Hindustan Petroleum Corporation, are suffering revenue losses because of selling petroleum products at Government regulated prices.
To meet its investments plans, the company resorts to borrowing, which stood at Rs 95,136 crore as on December 31, 2012. Besides, high interest costs also hit the company’s risk-taking appetite.
This year (2012-13), the interest cost would be very high Rs 8,000-8,500 crore, Butola said, adding that this was higher than last year.
But, he said IndianOil was managing its financial exposure very well given the circumstances — cost of borrowings going up and rupee being a cause for worry. “In terms of our cost of borrowings, we would be one of the best in the Indian market. Our treasury market outperforms. We get much finer rates. On a combined basis, our rate of borrowing is in single digits,” Butola said.
“We have international exposure. Our strategy is quite smart. Our foreign borrowing is around $ 7.7 billion. When we crossed $5 billion, it was a milestone. We are taking advantage of cheaper foreign loans,” he added.
As regards setting up a new refinery in the West Coast, Butola said, “We are still working on it. It is to prepare ourselves for 2020, when India will be having excess refinery capacity, but auto fuel demand is also expected to go up.”
