The Hindu Business Line : Subsidy burden tells on CPCL's bottomline

Despite a 56-per-cent increase in turnover (Rs 25,409 crore) in 2005-06, Chennai Petroleum Corporation Ltd posted a lower net profit, because unlike in the previous year, the company had to share the burden of subsidy with its parent company Indian Oil Corporation.

Last year, CPCL gave Rs 439 crore in the form of discounts to IOC "as part of subsidy sharing scheme" in respect of petrol, diesel, LPG and kerosene.

Because of this burden, CPCL's net profit for 2005-06 fell to Rs 481 crore from Rs 597 crore posted in the previous year. However, the company's board of directors has decided to maintain the dividend at Rs 12 (or 120 per cent), same as last year. The dividend includes Rs 3 (30 per cent) of interim dividend already paid.

Last year, the oil refiner processed 10.36 million tonnes of crude - highest-ever - compared with 10.2 mt in the previous year, according to Mr K.K. Acharya, Managing Director, CPCL, said at a press conference here today.

NEW PROJECTS

CPCL's fortunes (as any other oil refiner's) essentially depend upon its ability to process more and cheaper crude oil and ability to produce high-value products - mainly, diesel, petrol and LPG.

Towards this, two significant developments are happening at CPCL, the company's officials explained at a press conference here today. The first is efforts to raise the capacity of the refinery by de-bottlenecking. This will raise the throughput capacity from 9.5 million tonnes to 11.2 million tonnes in two years.

The company will spend about Rs 150 crore on this, but the expansion will mean additional turnover of Rs 4,000 crore at today's prices.

The second development is a Rs 3,500-crore `resid upgradation project'. The company's management expects to place the project before its board of directors by September. If it is approved, the project will enable CPCL to process more of the heavier, sulphurous crudes. These crudes leave heavy residues at the bottom of the refinery and the `resid plant' will convert the residues into petrol and diesel.

Today, only 70 per cent of CPCL's capacity can process sulphurous crudes. The resid project (along with an isomerisation plant and a catalytic reformer unit) will raise the company's capacity to process high sulphur crudes to 95 per cent. The ability to process more sulphurous crudes is significant because these crudes are cheaper than the non-sulphurous sweet crudes, by sometimes as high as $ 5 a barrel.

The `resid upgradation project' will be operational by 2010. Between now and 2010, CPCL is expected to spend between Rs 4,000 crore and Rs 5,000 crore on various capital projects. By 2010, the company will be able to process more crude oil almost all of which could be low-cost high-sulphur oil.