New Delhi: The country’s largest oil refiner, Indian Oil Corp. Ltd (IOC), that was looking to acquire a 51% stake in a refinery coming up in Turkey, will now have to be content with a lesser stake because more firms from other nations are interested in the project, which could serve as a gateway to lucrative markets in Europe.
IOC will now partner with KMG of Kazakhstan, State Oil Company of Azerbaijan Republic (Socar), Eni SpA of Italy and Turkey’s Calik Enerji A.S in the 15 million tonnes per annum (mtpa) integrated refinery being built at a cost of around $10 billion (Rs39,400 crore) at Ceyhan in Turkey.
Mitigating risk: Chairman and MD of IOC Sarthak Behuria. Some analysts say the firm’s plans to look at Europe and the US make sense. (Photo: Ashesh Shah/Mint)
“We had earlier applied along with Eni SpA of Italy and Calik Enerji AS for the integrated refinery project. Since more companies had evinced their interest to the Turkish government, they are of the opinion that we all should participate together for the project. The consortium has changed now,” a senior IOC executive who did not wish to be identified said.
“We earlier wanted to have a management control. With the new firms coming in we may have to revise it. We do not have a final proposal to evaluate (yet),” Sarthak Behuria, chairman and managing director, IOC said.
With the additional partners coming in, IOC’s share in the project will also come down to around 25% from its originally envisaged 51%. The company is hoping that the refinery will help it tap the market for petroleum products in Turkey as well as make inroads into markets in Europe and the US. Only a part of the product from the export-oriented refinery is meant for domestic consumption. The rest will be routed to Europe and the US.
“It is also good for us as we are not flush with money and a joint participation along with more companies will help us in mitigating risk. We are looking at a 25% stake in the project which will result in us investing around Rs3,000 crore over the next six years. However, the details are yet to be finalized. Even the final refining capacity will be decided by a market survey,” the executive added.
“I do not think that the dilution of share will be a problem for IOC,” said Deepak Mahurkar, associate director, oil and gas industry practice at audit and consulting firm PricewaterhouseCoopers.
The pre-feasibility report for the Ceyhan refinery project has been submitted and the refinery is expected to be completed in 2012. To fund its overseas plans, IOC has lined up a capital expenditure of Rs43,000 crore over the five years to 2012.
Some analysts say that IOC’s plans to look at Europe and the US make sense as no new refinery has been set up in these markets in the past decade. Not everyone agrees with that assessment. “Global refining will be flush (in terms of capacities) by 2012. There is a good chance that the demand for petroleum products will come down due to the economic downturn,” added Mahurkar.
IOC is also looking at two other projects in Turkey: A $2 billion pipeline from the Black Sea to the Mediterranean Sea, and a 52-53% stake in Petkim Petrokimya Holdings AS, a petrochemicals complex as reported by Mint earlier. The pipeline is expected to ship Caspian crude to the refinery.
IOC had a total debt of Rs28,834 crore on its balance sheet and expects it to reach Rs32,000 crore by March.
Currently, India has a refining capacity of 149mtpa of crude, and IOC has a 40.4% share of the business.
On Thursday, the firm announced its results for the three months ended December and said net profit rose 17% from a year ago on the back of an increase in the refining margins combined with the effects of rupee appreciation and subsidy-sharing efforts by the government.
The government mandates the price at which fuel can be retailed in the country and compensates refiners and marketers of fuel such as IOC through subsidies.
The net profit for the three month period was Rs2,090.69 crore compared with Rs1,791.37 crore a year ago. Revenues for the quarter rose 13% to Rs64,726 crore.
IOC’s refining margin was $10.43 per barrel in the quarter as compared with $4.50 per barrel in the corresponding period last year. The firm also gained Rs991 crore on account of the rupee’s appreciation during the quarter. Refining margins would reduce a bit in the future, Behuria said. “$10 per barrel is too much a refining margin to expect. It will come down and settle around $8 per barrel,” he added.
IOC is also in talks with Petrobras, Exxon Mobil Corp., Chevron Corp. and Reliance Industries Ltd for bidding for oil and gas blocks offered in the seventh round of the government’s new exploration and licensing policy. It also plans to bid on its own for the nine small blocks that have been offered by the government.