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Corporate - Interview

IOC aims for presence from `drilling to dispensing'

Raghuvir Srinivasan
M. Ramesh

Chennai , March 12

INDIAN Oil Corporation (IOC) is an oil multinational in the making. Ranked 191 in the Fortune 500 list, IOC wants to get into the first 100 ranks by 2011 pushing its turnover from $25 billion now to $40 billion by that period.

In an interview to Business Line recently here, Mr M.S. Ramachandran, CMD, said that his vision for IOC is to be an integrated energy company with a presence from "drilling to dispensing". Asked about emerging free-market competition he dismissed it saying, "We like competition because that is the only way that we will be kept on our toes." Excerpts:

Crude prices are at their year's high. What is the impact on IOC?

The under-recovery on LPG and kerosene subsidy will be higher. There will also be some under-recovery on petrol and diesel prices, which we have not raised. The under-recovery on LPG and kerosene alone will affect us by about Rs 3,000 crore.

IOC's sales volume has not shown growth either in 2002-03 or in the first nine months of this fiscal. What is the reason?

This year there is a growth. We have a high exposure to certain products used in the industrial sector such as naphtha and fuel oil. We were selling about half-a-million tonnes of naphtha to IPCL (taken over by Reliance) and to fertiliser plants, a number of which have closed down. The sales to these customers are lost. Our volume loss in naphtha and fuel oil put together, runs to a couple of million tonnes. That is the reason for the negative growth. The sharp decrease in naphtha sales has offset the increase in sales of other products.

How are you using the excess naphtha and fuel oil produced now? Are you exporting it or are you running your refineries at low levels?

We have a very clear programme of handling this excess naphtha and fuel oil. Some of the naphtha will be converted to petrochemicals, some into LPG and whatever is surplus to that requirement will be exported. As for fuel oil, we have a proposal to convert it into distillates. We have put up a coker plant in Panipat which will convert heavy petroleum stock into petroleum coke which can be supplied to power and cement plants.

There is a 10-12 per cent excess capacity in refining. When do you see this being absorbed?

I don't see that happening for the next five years.

So does that mean there will be no investments in new capacities?

Not at Indian Oil. We have some brownfield expansions going on stream in the near future. Panipat will be doubling capacity to 12 million tonnes by 2005; our subsidiary, Chennai Petroleum will increase its capacity to 10 million tonnes by June this year, while Barauni has already been expanded to 6 million tonnes though we are not able to run it fully due to inadequate crude supplies.

What is the status on your Paradip project?

An MoU has been signed with the Orissa Government and we hope to commission the refinery by 2009-10, which will be advanced by one year if the market conditions are favourable.

What will happen to the proposed Paradip-Haldia crude pipeline that you planned?

We are going ahead on that and have already received environmental clearance from West Bengal. The Orissa Government's clearance is expected in a week's time. This is the most important pipeline project that we have. It will save us about Rs 400 crore in a year. The Haldia port is shallow and cannot receive large shipments of crude oil. There is a huge loss in terms of freight as we bring large crude shipments to Kakinada and then transport it in small parcels to Haldia. We have begun work on this pipeline and it should be commissioned in two years' time.

Considering that you don't have to invest much in refining what is your current focus on?

We are looking at petrochemicals, upstream and also strengthening our marketing. We have farm-in stakes in exploratory blocks from Premier Oil and Hindustan Oil Exploration Company.

What about plans of working jointly with ONGC Videsh?

The Empowered Committee of Secretaries decided that IOC should get 40 per cent of the stake being bought in Sudan which has not yet taken place. If we are to become a vertically integrated company we ought to go into exploration and production. But you cannot do that in India alone and we have no mechanism to go worldwide. If we set up a company or buy one outside, we are not allowed to invest unless it is cleared by the Cabinet. For ONGC Videsh alone there is a mechanism called the Empowered Committee of Secretaries which has the powers of the Cabinet. We don't have that authority but have sought it now. Every company wants to be a dominant player and in a consortium such problems arise. We said that either give us a good stake in ONGC Videsh or alternatively allow us to fly solo. We have had two rounds of meetings but no decision has been taken.

In petrochemicals, we are investing Rs 7,000 crore to set up an 8-lakh tonne naphtha cracker with associated downstream capacities. This is in addition to the capacities for PX/PTA coming up at Panipat.

What are your plans for IBP? Any chance of a merger with IOC?

We are not saying that we will keep it separate but there are certainly no plans for an immediate merger. As of now there are no proposals on the table but the possibility in the long run cannot be ruled out.

What about CPCL and BRPL?

CPCL cannot be merged because National Iranian Oil Company has a stake in it. We offered them a stake in IOC but they turned it down saying that they want to play a part in the management of the company where they have an equity stake. BRPL is a North-east refinery and there are sentiments attached to it. So it will probably remain that way.

Is it correct that you are picking up a stake in an Iranian petrochemical project?

Our team has visited and we are looking the proposals, terms and conditions. It's a plant under construction with a naphtha-cum-gas cracker of about a million tonnes capacity. We are thinking in terms of picking up an equity stake in the project.

You were said to be in talks with Reliance on re-negotiating the marketing pact. What is the news on that?

We will honour the agreement with Reliance strictly. IOC has an agreement to lift Reliance's products up to 2009 but the take-or-pay commitment ends this year. Whatever product is required and not available with us, we will take from them. The volumes have not been decided yet and the teams are negotiating. No final decision has been taken yet.

How do you see the privatisation programme affecting the oil industry?

If HPCL is sold to Reliance the number of players will remain the same but if it is sold to a multinational, the number of players will increase. We have seen competition in the past; the lubricants segment is a good example where we have held our own despite the entry of about 30 new players, including major multinationals. We like competition because that is the only way that we will be kept on our toes. Obviously, our marketing will be under high stress but that is what will help us grow.

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