Fortune-500 company and state-run refiner Indian Oil Corp will invest ₹1.8 trillion in the next 6-7 years to ramp up capacities in refineries and gas pipeline. Speaking to BTVi, IOC Chairman B Ashok said inventories have helped in improving gross refining margins (GRM) to $9.9 per barrel in Q1, which may not be sustained during the rest of the year. However, the Paradip refinery will help the Navaratna company to improve the GRM in coming quarters, he said.

What has led to the sudden jump in the GRM?

Our Q1 GRM was $9.9 per barrel. If you leave out the inventory effect, it would have been $4.5 a barrel. Suddenly, the inventory has contributed to the increase. But you must factor in the fact that our inventories’ losses were very high both in FY15 and FY16.

Moving forward, I don’t believe that we should be having that sort of inventory effect over the whole the year because crude prices will be range-bound. There could be some fluctuations but it will be more of a normalisation over time.

That being the case, if we are able to sustain our operations the way we were doing in the last two years in terms of operational excellence in our refineries, we should be able to make decent GRMs.

The other thing that will add positively is the Paradip refinery that is under stabilisation. As you know, it is a complex refinery with multiple units, which are under various stages of stabilisation. All the units have been commissioned and probably in a month or so, we will be able to operate all units together on a sustained basis. Once we do that, we believe the Paradip refinery’s contribution will be at least $2-3 per barrel more and that will help in picking up the average GRM.

Can you give us any guidance on volume growth in coming quarters?

Growth has been quite robust for gasoline; there has been double-digit growth. Even in diesel, though last month it was slightly muted due to the rains, the Q1 growth was good. Moving forward, we think that overall volume growth of 6-8 per cent should be possible.

What is your capex plan for FY17 and the coming years?

In the current year, we will invest close to ₹15,000 crore on various projects under implementation. But in the next three years, we expect to invest close to ₹72,000 crore.

We have also made an assessment that in the next 6-7 years we need to invest close to ₹1,80,000 crore. This will include significant capacity additions of 24 million tonnes through brown-field expansions and quality upgradation in our refineries.

Besides that a lot of pipeline projects are being build up. Almost 6,500-km of pipeline will be build up. There will be marketing infrastructure that will be set up. There are a number of petrochemical projects that are under various stages of implementation. That would also call for significant investment.

On natural gas, we are making huge investments, including the first re-gasification terminal in the east coast.

Above all these, we are also looking at E&P (exploration & production). Going by the current trend of low oil prices in the world market, it is a window of opportunity for us. We are looking quite aggressively some equity or overseas assets.

What are the marketing margins at present and what’s your outlook?

I will not say that marketing margins are significantly different. But what is of significance is that since the industry is decontrolled, we do not have any under-recoveries that we used to have earlier. So, there are no under-recoveries on marketing of automotive fuels. On LPG, we are selling it at market determined prices. Even on PDS kerosene, we are able to get reimbursement from the Centre.

But in retail business, what has really helped us is that due to freeing up of prices, we are able to do certain amount of market-determined pricing at this point. And probably 15-20 per cent of our volumes are based on market determined pricing mechanism, which we are implementing.

Besides that, there is a lot of emphasize on non-fuel retailing activity both in our regular, highway and rural outlets. So these non-fuel retailing is adding to our marketing margins.

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