IndianOil offers to meet petroleum demands of all SAARC nations
New Delhi   08-Oct-2008
<b>Rejects ten proposal for $8-bn regional refinery; says capacity addition will do the trick</b> The country’s largest oil refining and marketing company-IndianOil - has offered to meet the entire demand of petroleum products emerging out of the SAARC region by ramping the capacity of its existing refineries in India. The region comprises of nations like Nepal, Bhutan, Maldives, Bangladesh, Pakistan, Sri Lanka and Afghanistan. IndianOil has made this offer in response to a proposal made by The Energy Research Institute (Teri), to the SAARC secretariat in Kathmandu, that a 23 million tonne per annum grass root refinery be set up specifically to meet the region’s demand for petroleum products. Teri had estimated the cost of this new regional refinery at over $8 billion. To get an idea of petroleum products imported every year by the SAARC nations, it may be noted here that the foreign exchange out go on diesel imports alone is a whopping $14 billion plus. Instead of setting up of a new refinery (estimated to cost over $8 billion), IndianOil said the demand for products can be met by suitably expanding the capacities of some of its existing refineries. Officials said the SAARC nations would be meeting to discuss the proposal soon. IndianOil, along with its subsidiaries, own 10 refineries in India with a capacity close to 67 million tonne. IndianOil is also in the process of implementing a 15 mtp a refinery project at Paradip, in Orissa. With some other expansions at hand, IndianOil will have a refining capacity between 90-95 mtpa by 2012. According to IndianOil, its refineries are strategically located with proximity to the SAARC countries (except Afghanistan) and therefore, suit the logistics cost requirement of supplying products. SAARC nations are spread out from Nepal, Bhutan and Bangladesh in the north-east and eastern part of India and Sri Lanka and Maldives in the south to Pakistan and Afghanistan on the north-west part of India. “In case other countries accept long term tie-up with IndianOil for the supply of petroleum products, IndianOil can suitably expand the capacity of some of its existing refineries to meet their (SAARC nations) requirement on mutually agreed terms based on international prices,” IndianOil has written to the petroleum ministry. According to Teri’s study, countries like Bhutan, Maldives, Nepal and Afghanistan are nearly 100% import dependent while Sri Lanka imports about 50% of its petroleum product demand. Bangladesh, India and Pakistan are largely dependent on imported crude oil to meet their petroleum product requirement. However, Bangladesh, Sri Lanka and Pakistan have limited refining capacity and therefore are dependent on import of petroleum products to meet their energy demand. Although India, on an aggregate, has a surplus refining capacity, it is still not sufficient to meet the demand of all its petroleum products. It therefore, imports some quantity of select petroleum products such as LPG. The demand for petroleum products in the future is expected to increase further. Teri says the demand for petroleum products in the region (in a 10 year time frame 2005-2010) is expected to grow at a CAGR of 3.08% from 132 million tonne of oil equivalent to 153 mtoe, with Maldives registering the highest growth of around 22.17%, followed by Sri Lanka at 12.09% and Pakistan at 11,96%. Teri had accordingly proposed that considering the current dominance of diesel in energy consumption profile of the region, the new 23 mtpa regional refinery be configured so as to maximise diesel production. Teri had also suggested that the new refinery have 65% of its products output as diesel, 15% petrol, 3% LPG, 10% naphtha and 5% petroleum coke. Commenting on the product pattern proposed by Teri or this new regional refinery, IndianOil said that except for diesel, which has a demand growth in the region, the evacuation of other products specially naphtha and pet coke has not been addressed by Teri. “These products probably would have to be exported to the countries outside the Saarc region, thus reducing the refinery margin due to additional freight/discounts,” IndianOil said. IndianOil also said that the proposed refinery or a spread of two to three refineries (at different coast allocations) would also impact the environment in terms of emissions of green house gases. Listing the benefits of setting up a new refinery, with participation by member nations, Teri said this would accrue huge savings on outflow of foreign exchange. Besides, most of the refineries in the region are old and require upgrading in order to increase output. The refining capacity in three of the four member states has remained constant over the past few years. Pakistan has added only one mmtpa of refining capacity since 2001, and both Bangladesh and Sri Lanka have one refinery each, with a refining capacity of 1.5 mmtpa and 1.2 mmtpa respectively. India alone has been augmenting its refining capacity regularly. <b>Credit of Rs 150 cr for constant IndianOil supply to Nepal</b> There could not be a better festival gift from Prime Minister Manmohan Singh to the people of Nepal. As a good will gesture, New Delhi has agreed to allow a credit of upto Rs 150 crore for UN interrupted supply of petroleum products by the state-owned IndianOil to Kathmandu during the festival season. Informing petroleum minister Murli Deora of the decision, the external affairs minister, Pranab Mukherjee said, “The Prime Minister has agreed to allow a credit of up to Rs 150 crore to the Nepal Oil Corporation (NOC) for the next three months. In view of this decision, I would request you to advise IndianOil to supply petroleum products on credit to the extent of Rs 150 crore over and above the existing arrears.” NOC imports all its petro products from India and had even defaulted on payments for its POL supplies from India. Its dues had mounted to Rs 400 crore in March last year. Under an agreement between IndianOil and NOC, the outstanding dues are being liquidated at the rate of Rs 15 to 20 crores per month, which has brought down the dues of NOC significantly from Rs 400 crores to Rs 44.36 crore. After including the interest payable, the outstanding dues are Rs 95.64 crore.