New Delhi: State-owned Indian Oil Corp. Ltd, or IOC, plans to make the best of its surplus refining capacity at home to sell more fuel in Sri Lanka.
Its subsidiary, Lanka IOC Plc., will open 300 outlets over five years at a cost of 6 billion Sri Lankan rupees (Rs259.74 crore), K.R. Suresh Kumar, managing director of Lanka IOC told Mint during Petrotech 2009, held earlier this month in New Delhi.
Selling more: An IOC service station in Colombo, Sri Lanka. The firm will open 300 outlets. Dominic Sansoni / Bloomberg
Each outlet will require an investment of Sri Lankan rupees 2 crore, he said.
IOC’s business plan is based on the premise that surplus refining capacity in India will be used to service the Sri Lankan market that currently has a demand of 3.5 million tonnes per annum, or mpta, and a refining capacity of 2.2mtpa.
India has a refining capacity of 149mtpa of crude oil, and IOC, the country’s largest refiner, has a 40.4% share of the business. It controls 10 of India’s 19 refineries.
Lanka IOC currently retails petroleum products and also supplies them in bulk to industrial consumers out of a storage facility in Trincomalee in northeast Sri Lanka.
The expansion plans in Sri Lanka come at a time IOC, which lost money when oil prices soared because of the administered price regime for fuel products in India, has returned to profitability.
The company earns a profit of around Rs30 crore a day, according to an IOC executive who didn’t want to be identified.
It earns a profit of Rs7.8 on the sale of a litre of petrol, and Rs2.50 per litre on diesel. It, however, loses Rs14 per litre on kerosene and Rs32 on each cylinder of cooking gas, added this person.
IOC’s refining margin was $6.36 per barrel for the first half of the fiscal year ended September, compared with $8.44 per barrel in the same period the previous fiscal year.
“As IOC’s new refinery capacity comes online, there will be significant surplus,” said an oil and gas industry analyst at a Mumbai based-brokerage firm, who didn’t want to be identified. “It is a good move to increase one’s presence in a market where there is a deficit of domestic supplies.”
Lanka IOC competes with Ceylon Petroleum Corp., which has 1,070 retail outlets in the island nation.
Mauritus is the only other foreign country in which IOC has a retail presence through Indian Oil Mauritius Ltd, which is scouting for retail opportunities in Libya, Yemen, Oman, Turkmenistan and Azerbaijan.