Oil India plans to enter refining business3 min read . Updated: 26 Aug 2013, 01:11 AM IST
Firm looking to lower risk as production from Assam fields falls, political situation in state likely to worsen
New Delhi: State-owned hydrocarbon explorer Oil India Ltd plans to diversify into building and operating refineries in the country and is looking for a partner.
“We are looking at refining business as part of our diversification strategy. Our plans are India-specific," said T.K. Ananth Kumar, director, finance.
With production from its Assam fields falling and the political situation in the state likely to worsen on renewed demands for a separate Bodoland state, the firm would like to lower risk in its business stream.
The move comes in the backdrop of India becoming a refining hub. The country has a refining capacity of 215.066 million tonnes per annum (mtpa) and is ranked fourth in the world. This is expected to increase to 232.3 mtpa at the end of the current fiscal year and 310.9 mtpa by 2016-17. India is a net exporter of petroleum products such as petrol, diesel, jet fuel and naphtha.
“We are looking for partners. These are domestic refining companies," Ananth Kumar said but declined to name them.
India has 22 refineries. There have been instances of refineries being set up through the joint venture route by public sector companies. The recently commissioned refineries, such as six mtpa-Bina refinery in Madhya Pradesh and 15 mtpa-Bhatinda refinery in Punjab, were set up in joint venture with Oman Oil Co. SAOC and Mittal Energy Ltd, respectively. Oil India has a 26% stake in three mtpa-Numaligarh refinery in Assam. Bharat Petroleum Corp. Ltd and the government of Assam own 61.65% and 12.35% stake, respectively, in the refinery.
Some of the big refiners in India include Mukesh Ambani-controlled Reliance Industries Ltd, which operates the refining complex in Jamnagar, Gujarat, with 60 mtpa capacity. Also, Essar Oil Ltd operates the 20 mtpa-Vadinar refinery in the state.
Experts welcomed Oil India’s move.
“There is a need for more refining capacity in the country as India’s energy needs will grow. The current economic turbulence is a temporary phase. Even if India’s economy grows by 5%, we will need more energy to fuel it," said B.N. Bankapur, former director of refineries at state-owned Indian Oil. “With the energy sources being primarily hydrocarbons, naturally there will be a need to set up refineries. Otherwise, we will be forced to import petroleum products that will add to the current account deficit."
India’s energy demand is expected to more than double by 2035, from less than 700 million tonnes of oil equivalent (mtoe) today to around 1,500 mtoe, according to the oil ministry.
Indian public-sector refineries have been sourcing products from the privately owned refineries. Oil India’s plans are in line with the demand growth in the Asia-Pacific region, which has become the world’s largest consumer, accounting for 39% of the global primary energy consumption. India is the second largest refiner in the Asia-Pacific. In addition, India’s demand for petroleum products such as petrol, diesel, liquefied petroleum gas, jet fuel, bitumen and petcoke is expected to grow from 152,937,000 mt to 186,209,000 mt by 2016-17.
“There is no synergy for Oil India to get into this business. They don’t have any extra crude. Assam is not a place to set up a refinery. Refining has to be done at the port as it gives the option of sourcing cheap crude at a discount," Bankapur said. “Oil India has got no advantage except from an investment point of view. They are better off than the downstream companies."
Oil India’s net profit in the three months to 30 June fell 34.5% to ₹ 609 crore on account of its subsidy burden—for supplying crude at a discount to state-run oil marketing companies, amounting to ₹ 1,982 crore—and low realization. Oil India also registered a 14.3% drop in turnover for the quarter to ₹ 2,097.77 crore from ₹ 2,439.63 crore in the year-ago period due to a fall in crude oil prices.
This comes in the context of India’s inability to meet domestic production targets and concerns about the production capabilities of state-owned firms and the need to find new reserves.
Oil India has been unable to meet its targets due to several strikes and blockades in Assam. Of a gas production target of 2,919 mcm in 2012-13, it could only achieve 2,639.212 mcm. Of this, 2,424.653 mcm came from Assam. Also, of a production target of 3,950,000 tonnes of crude oil last fiscal year, the explorer produced 3,661,000 tonnes. Of this, 3,639,000 tonnes came from Assam.