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Chennai Petroleum Corporation Ltd, a standalone refinery of Indian Oil Corporation, is exploring options to save on costs as its margins narrow with falling crude oil prices.
An immediate solution it sees is expanding sales of petroleum products within Tamil Nadu to save on Central Sales Tax – the company shells out ₹250-300 crore for CST annually when its sells products outside the State.
It has also initiated a study to expand the product range at the Cauvery Basin Refinery in Nagapattinam, Tamil Nadu.
Gautam Roy, Managing Director, Chennai Petroleum, in an interaction with the Hindu Group of journalists, said the refinery is talking to oil marketing companies to increase sales of its products in Tamil Nadu and bring down the proportion of State sales.
Last month, the company started shipping diesel from Chennai Port to Ennore Port to cater to Hindustan Petroleum’s demand, but delays at the port hit margins. However, the refinery sees benefit and hopes to sustain the move, he said.
At 2 per cent CST, the refinery shells out over ₹1,300 a tonne in tax on products. In the first half of the current year, it cost the refinery over ₹125 crore. Diesel is the single largest component of its production at about 350,000 tonnes a month with 85,000 tonnes sold outside the State. The company hopes to minimise this out-of-state sale.
Increasing efficiency to improve the gap between crude prices and revenue from finished products – the gross refinery margin— is one of the challenges before the company.
This gap contracted by 75 per cent to $2.37 in the second quarter of the current year compared with last year resulting in the refinery losing over ₹230 crore.
It has to improve the percentage of yield of finished products from crude oil. Between April and September this year, it was about 71 per cent. The completion of the ₹3,110 crore resid-upgrade project will help increase this yield by 5-6 per cent. The entire project will be ready in December 2015, he said.
A 17-km, 42-inch pipeline from Chennai Port to Manali to carry crude is awaiting clearance from the Union Ministry of Road Transport and Highways, Roy said.
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