The Hindu Business Line : BRPL may improve capacity utilisation after merger with IOC

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BRPL may improve capacity utilisation after merger with IOC

Pratim Ranjan Bose

Kolkata, May 30 Bongaigaon Refinery and Petrochemicals Ltd (BRPL) may go for higher capacity utilisation by using imported crude following merger with parent IndianOil. Proposals for capacity escalation may also be considered. The merger proposal is already approved by the shareholders of both the companies and is now awaiting clearance from the Union Government.

According to sources, while the IndianOil group is making fast moves in improving crude availability in its refineries in Assam, higher crude processing would inflate BRPL’s sales tax under-recoveries — now amounting to approximately Rs 80 crore a year — generated out of double taxation during the inter-State transfer of products. Unlike many other commodities, oil products do not enjoy Modvat (modified value-added tax) benefits

The 2.35-million tonne refinery is currently processing 2 million tonnes of crude. Since North Eastern region has a much lower appetite for refined products compared to the existing refining capacity, larger part of the products are transferred to IOC for marketing through the latter’s Siliguri terminal in West Bengal, leading to double taxation of products of which only half is recovered from the customer.

The underlying situation makes it imperative that higher sales would increase BRPL’s Central Sales Tax under-recovery. The situation, however, will change once the refinery becomes a part of IOC as stock transfers within the company are not subjected to such double taxation.

Importing less

According to sources, though IOC has already established logistics for supply of cheaper imported crude through IndianOil-owned crude pipeline between Barauni in Bihar and Assam, BRPL is importing a mere 0.3 million tonnes of crude, primarily for replacing the use of Assam crude.

The imported crude supply logistics would improve with the commissioning of Paradip-Haldia crude pipeline connected up to Barauni through the existing Haldia-Barauni pipeline.

While studies are underway for further improving the crude supply logistics in Assam, IOC may be waiting for the merger for implementing the proposals.

Since refining capacities in Assam avail 50 per cent excise duty exemption, leading to very high refining margin, better crude supply and product evacuation plans may also offer IOC the opportunity of using Guwahati and Bongaigaon as refining hubs.

Meanwhile, BRPL has ended the last fiscal with 58 per cent higher net profit of Rs 294 crore. The higher profits came on a mere 3.41 per cent increase in turnover to Rs 6,645 crore. Gross refining margin was $16.8 a barrel of which approximately $8 a barrel was generated due to duty exemption.

The profitability of the standalone refinery continues to be good in the current quarter of 2008-09 on the back of approximately $17-a-barrel refining margin posted during April and May.

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