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Essar Oil breaks into PSU firms’ turf, to sell jet fuel to Armed Forces

Essar Oil breaks into PSU firms’ turf, to sell jet fuel to Armed Forces
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First Published: Sun, Aug 10 2008. 11 58 PM IST

Essar Oil’s refinery at Vadinar in Gujarat. The company is expanding its refinery capacity to 34mt per annum from 10.5mt with an investment of $6 billion (Rs25,320 crore). It is in the process of tyin
Essar Oil’s refinery at Vadinar in Gujarat. The company is expanding its refinery capacity to 34mt per annum from 10.5mt with an investment of $6 billion (Rs25,320 crore). It is in the process of tyin
Updated: Sun, Aug 10 2008. 11 58 PM IST
Mumbai: Essar Oil Ltd, a part of the Mumbai-based steel-to-power conglomerate Essar Group, plans to start supplying jet fuel or aviation turbine fuel (ATF) to the country’s Armed Forces by September, breaking into territory monopolized by state-owned oil firms.
The company, which also plans to start selling ATF to commercial airlines by the end of August, has been issued a so-called certificate of type approval, a prerequisite for supplying jet fuel to the Armed Forces, by the Centre for Military Airworthiness Certification, or CEMILAC.
Essar Oil’s refinery at Vadinar in Gujarat. The company is expanding its refinery capacity to 34mt per annum from 10.5mt with an investment of $6 billion (Rs25,320 crore). It is in the process of tying up and setting up a facility for marketing ATF.
“Essar Oil is planning to start selling jet fuel to the defence forces through state-run oil marketing companies by September,” an Essar executive familiar with the development said. “This (selling through state-run companies) is because direct supply has a higher lead time.”
Essar would have to pass through several time-consuming security steps to start supplying directly to the Armed Forces. Using state-owned oil companies, which have already cleared the process, to deliver the fuel would be less complicated.
Officials at CEMILAC, a Bangalore-based agency of the Defence Research and Development Organisation, could not be contacted over the weekend to comment on Essar’s plan or to ascertain if other private companies had been awarded similar approval.
Reliance Industries Ltd already sells jet fuel to commercial airlines at some domestic airports.
The government has also granted marketing rights for ATF to Shell India Pvt. Ltd, a local unit of Royal Dutch Shell, and Mangalore Refinery and Petrochemicals Ltd, a subsidiary of Oil and Natural Gas Corp. The two formed a joint venture to supply jet fuel, initially at the Bangalore and Hyderabad airports.
The Essar executive, who spoke on condition of anonymity because of the sensitive nature of the issue, said the company was given approval after extensive audits covering all its refinery operations, including crude selection, processing, storage, testing and dispatch.
This approval is valid for five years, after which it has to be renewed.
Another senior Essar executive, who also asked not to be named, said the company received the approval in late July.
“This will be a new avenue for Essar Oil to enhance revenues,” said a Mumbai- based analyst who tracks oil companies and did not want to be identified because he is not authorized to speak with the media. “Though the volume of ATF sale to the Armed Forces is very small, it gives lot of credibility to the product as it has cleared stringent tests.”
Sale of ATF to defence forces is 0.45-0.46 million tonnes (mt) a year, and growing at an annual pace of 5%, according to industry estimates. The total ATF sold in India is 4.6mt.
Indian Oil Corp. Ltd is the top ATF supplier to the Armed Forces, accounting for 95% of the total volume. The balance is supplied by Hindustan Petroleum Corp. Ltd and Bharat Petroleum Corp. Ltd.
“Selling ATF to Armed Forces is a sensible extension of its (Essar Oil’s) proposed jet fuel business. However, state-run oil marketing companies will continue to dominate this business in the near future,” the analyst said.
Naresh Nayyar, managing director of Essar Oil, in a conference call on 1 August, told analysts that his company had received approval from the aviation regulator, the director general of civil aviation, for selling ATF in the domestic market.
“We are in the process of tying up and setting the requisite facility for marketing ATF in the near future.”
Essar is expanding its refinery capacity to 34mt per annum from 10.5mt with an investment of $6 billion (Rs25,320 crore).
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First Published: Sun, Aug 10 2008. 11 58 PM IST
More Topics: Essar Oil | ATF | Oil PSU | Armed Forces | Airlines |