The Hindu Business Line : `Export and retail plans in the pipeline'

WITH the implementation of some major modernisation and capacity expansion programmes, at a cost of around Rs 3,000 crore, Kochi Refineries Ltd plans to make inroads into the retail and export markets as well.

Mr Cherian N. Punnoose, Finance Director of KRL, told Business Line that being a coastal refinery with proximity to one of the world's best natural ports, the refinery is poised to capitalise on its locational advantages as well.

You have a whole array of projects worth Rs 3,000 crore coming up in the next six years. How would you sequence and prioritise them?

The Single Buoy Mooring project (SBM), which is likely to be executed by the middle of 2006, could be termed top priority since it has linkages with our expansion plans, operational costs and efficiency as well as export operations. Other than in Gujarat, there are no other SBMs either on the Western or Eastern coast. Its installation will generate savings of over Rs 150 crore an year, which is almost a third of our net profit.

What stage is the project at?

We have already obtained all the clearances other than the environmental clearance from the Union Government. That clearance, we expect to obtain by the end of this month. Finances for the Rs 623-crore project have been sewn up and the project will commence immediately on receipt of the final clearance.

What are the economic advantages that would accrue with the execution of the project?

Over and above the Rs 150-crore financial bonus, the installation of the SBM will vastly improve the sourcing of crude and could make the sourcing a truly international operation. We will be able to access crude from any part of the world, from Nigeria to places as distant as Latin America. This will enhance our bargaining ability on price, quality and quantity. With the exceptionally large shipments, better economies of scale would come about. Once the Kochi SBM stabilises, the port could act as a nodal port for transhipment to smaller vessels and transport the surplus crude to other refineries on the East and West coast. These refineries are likely to find this sourcing from Very Large Crude Carriers (VLCC) of three-lakh-tonne capacity and splitting to smaller vessels a lot more economical, rather than continuing to source and transport their crude requirements in smaller vessels of 65,000 tonnes.

You mentioned something about export?

Kochi being an all-weather port of international standards and we being a coastal refinery, we can always fall back on product exports, an avenue which several other refineries in the country are not privy to. Also, once the SBM is in position, the existing pipelines meant for transporting crude to the refinery will become redundant and we could use that facility to economically transport products for the export market. These are all factors that we will consider when we take up our expansion programmes.

What stage is your expansion programme at?

A capacity expansion of two million tonnes is being contemplated along with Phase II of the refinery modernisation project. Phase II of the project will be taken up on successful completion of the Rs 273-crore Phase I, scheduled for December 2004.

Coming back to Phase II?

Phase II, with an envisaged project cost of Rs 2,000 crore, still has to be ratified by the board of directors. It is aimed at capacity expansion and modernisation to meet the Euro II refining and product norms. We plan to tap an additional capacity of two million tonnes mainly through the de-bottlenecking process: introducing new technology and erecting new columns. We have a deadline of 2010 to upgrade the products to Euro II standards, but we might complete the project even earlier.

What are your plans on the product retail marketing front?

We have applied to the Government seeking permission to start 300 retail units in South India, in the States of Kerala, Tamil Nadu and Karnataka. We realise that it is a very competitive market. But we at KRL have a very good brand image in South India. Like BPCL, we will also be starting an aggressive campaign similar to `Pure for Sure.' Quality, timely delivery and pricing are going to be principal yardsticks by which tomorrow's marketing companies are going to be measured. And on all these counts, we are as good as any other company in South India.

What has prompted you to revive your power project proposal?

There were two reasons. When the demand forecasts for petroleum products for the Southern States were scaled down, we were forced to re-think about our expansion programmes.

This resulted in a shortfall in the projected furnace oil production, the feedstock for the power project, and we decided to keep the power project in abeyance.

But recent developments, such as the amendments to the Electricity Act, the revised fuel demand forecasts, possibility of other cheaper raw materials such as LNG emerging, have prompted us to reconsider the power project once again.

We are equally interested in participating in the proposed LNG terminal in Kochi.

It will not only result in cheaper source of energy, but could foster faster industrialisation and benefit the State as well.