‘Oil marketing firms will not gain from LPG, kerosene under-recovery’

BTVI spoke with MK Surana, CMD, Hindustan Petroleum Corporation Limited, on the company’s Q1 earnings performance. Excerpts:

The GRM (gross refining margin) for the quarter came in at $6.83/bbl vs $8.56/bbl. Is the inventory gain part of that? Could you take us through how the product delta has done with Singapore GRMs cooling off.

Profit grew by 30 per cent in the first quarter. Last year’s petroleum/gasoline cracks were extraordinarily high — usually they are lower than HSD (High Speed Diesel). So now we are seeing a normalising effect. The inventory gain component is there due to hardening of crude prices. The cooling off on cracks has been levelled somewhat by the inventory gain. We had a reasonable GRM of $6.83/bbl as a result.

How much is the inventory gain, is it $2/bbl? Stripping that out, would the GRM be $4.83/bbl?

Yes, it should be in that range, but it must be seen in the light that last year the MS (Motor Spirit) cracks were $20, which came in around $10 this time.

How are the petrol/diesel cracks doing now? Is gasoline receding further?

The gasoline and HSD cracks have been better in the last few days than they were in July. It had gone down to $6 in July, and is at $8.14 as of today for gasoline, and $10.6 for diesel today.

The government has undertaken three price hikes for kerosene, and has covered the under-recovery. How much of a working capital improvement do you see as a result?

Oil marketing companies do not gain from the LPG and kerosene under-recovery being covered by the government. That subsidy was anyway coming from the government and upstream oil companies. Since the under-recovery was very less, there’s marginal impact on working capital.

How are marketing margins doing for petrol and diesel?

It remains in the same range as last year.

Can you share the timeline and financing details of the Vizag and Mumbai refineries?

The Vizag expansion plan is for ₹20,928 crore capex over the next four years. The financing in the initial years will be done from internal resources. For the last two years, we have had reasonable internal cash generation. Later on, this will be done via borrowing to some extent. HPCL remains under-leveraged, and has good ability to borrow. The first phase of the Mumbai expansion will be done in three years. Both the refineries would be BS-VI compliant. In Vizag, we are also undertaking upgradation that will improve the distillate yields and help improve the margins by $2-3/bbl. The upgradation for Mumbai will happen in phase-II.

How is the Bhatinda refinery coming along? What is the GRM there, and what is your crude sourcing model for that refinery?

For Vizag and Mumbai, the high sulphur crude is sourced from West Asia. Lower sulphur crude is being procured from African countries. Bhatinda is a modern refinery with a higher complexity factor, and it processes more varieties of crude. Our GRM in Bhatinda is best in class. The board meeting for that refinery is yet to be done, so we cannot give you the exact number yet. I can assure you that it is in double digits.

With regard to fuel upgrade to BS-VI, can you lay out the exact timeline?

In both refineries, along with the expansion plan, we are also putting in place the upgradation to make it compliant to BS-VI specifications. We will be ready for roll-out by April 2020.

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