The move comes when the company is in talks with Russia’s state-owned petroleum explorer Rosneft to sell over 49% stake in Essar Oil, according to an announcement made by the two companies in July 2015.
Essar Oil which runs a 20 million tonnes per annum (MTPA) capacity refinery at Vadinar in Gujarat, has already earmarked and acquired land which around 5km away from the refinery to develop a petrochemical complex that would produce gasoline, liquefied petroleum gas (LPG) and propylene among other products.
“We do have a plan to set up a petrochemical complex near Vadinar. The proposed project would include a 5-million-tonne-a-year fluid catalytic cracker costing $1-1.5 billion. We cannot talk much about this as the project is yet to be approved by the company’s board," Lalit Kumar Gupta, managing director and chief executive officer of Essar Oil, said over the phone.
The proposed complex, if finalized, may also house a polypropylene plant at a later stage looking at the demand that is growing by 10-15% per annum, according to Gupta.
Essar Oil’s plans for refinery expansion and new investments got stuck after the company had to shell out about ₹ 6,000 crore to the Gujarat government as sales tax liability following a Supreme Court verdict in 2012.
The company’s plans for new investment are on, said a company official with knowledge of the development. He did not wish to be named.
He said that the petrochemical project would take shape once the Rosneft deal is through which is expected soon.
Essar Oil has a huge debt pile running into billions of dollars and the stake sale deal is expected to ease the debt burden.
The company has all the necessary clearances in place to take the overall refining capacity to 60 mtpa, he added.
“Fresh investment is being made to upgrade its naphtha hydro treater (NHT), isomerisation unit, continuous catalytic reformer units and also facilities for further recovery of sulphur to further improve its margins," Essar Oil said in a press statement on Sunday.
In the quarter ended 30 June 2016, the refinery registered a gross refining margins of $10.29 per barrel (unaudited), bettering the Internatinal Energy Agency margin for Singapore complex refineries by around $6 per barrel. Gross refining margins are realisations from turning every barrel of crude oil into finished products.
Last September and October, the company invested ₹ 400 crore during a 28-day planned shutdown of the refinery.
“Post the shutdown, we have been able to modify our crude blend to process higher quantities of ultra-heavy and high acid crude, and increase the production of high value distillates. This has enabled Essar Oil to improve its crude and product mix significantly, which is reflected in our financial performance," said C. Manoharan, director-refinery, Essar Oil.
The company said the shutdown and subsequent investment decisions were taken with an eye on surging demand for petro-products in India over the medium and long term. The Vadinar refinery currently produces about 9% of India’s refining capacity and is also among the world’s most complex refineries.
Gupta of Essar Oil, said: “We are committed to making our refinery among the best in the world through efficient deployment of resources. With the shutdown having been successfully completed, earnings before interest, taxes, depreciation and amortization and profit after tax in the current financial year is expected to be significantly higher because of the full availability of the refinery, stable crude oil prices, and our ability to optimally leverage on the investments."
Since its commissioning in 2008, the refinery capacity has been increased from 10.5 to 20 mtpa.
Essar Oil which runs a network of 2,470 operating retail outlets, has 2,850 additional outlets in various stages of implementation. Essar Oil has a target of reaching 4,300 operational outlets by the end of FY 2016-17. The total capital investment in these outlets would be about ₹ 2,100 crore, which will be mostly infused by franchisees.