Companies

Essar Oil’s refinery upgrade plan to add to margin

Anand Kalyanaraman | Updated on January 17, 2018

essar-oil   -  REUTERS

Big retail expansion also on cards





Essar Oil plans to invest Rs 1,200 crore over the next two to three years to upgrade its 20 mtpa refinery in Vadinar, Gujarat. This is in addition to the Rs 400 crore invested by the company during the refinery’s planned shutdown in September – October last year. The company expects this total investment of Rs 1,600 crore to add $1.50 a barrel to its gross refining margin (GRM) – the difference between the price of its product basket and the cost of crude oil. Essar Oil’s refinery posts among the highest GRMs in the country (above $10 a barrel in the recent June quarter) – thanks to its high complexity that enables it to process the dirtiest crudes that are available cheaper into high-value distillate products. The planned investment is expected to the advantage by upgrading the refinery’s naphtha hydro treater, isomerisation unit, continuous catalytic reformer units and facilities for further recovery of sulphur. The company expects the benefit to start from 2018-19.

Essar Oil, which delisted from the stock exchange last year, plans to fund the investment through internal accruals. The company's promoters – the Ruias – are in talks to sell 49 per cent stake in the company to Russia’s oil major OAO Rosneft. Reports also suggest an additional up to 25 per cent stake to other oil sector players with names such as trading major Trafigura said to be in the fray. The promoter’s stake sale is expected to help reduce the high debt level at the group level (about Rs 90,000 crore).

Essar Oil is also aggressively expanding its product retailing business. From a network of 2,470 operating retail outlets currently – mostly franchisee owned and operated - the company has a target of 4,300 outlets by 2016-17. The outlets will entail an investment of about Rs 2,100 crore, to be mostly brought in by the franchisees. The company has plans to expand the number to outlets to more than 5,000 by 2017-18. These ambitious plans are driven by the pricing deregulation in the sector since October 2014. Lalit Kumar Gupta, Managing Director and CEO of Essar Oil does not expect the government to backtrack on the pricing deregulation measures. When the deregulation process with the gradual price hikes began under the UPA government, oil was above $100 a barrel. Today, it trades at less than half that price. Mr Gupta thinks that it is unlikely for crude oil prices to rise again to earlier three-digit levels. Also, no government would like to again take on the huge subsidy burden, he said.

With more of the company’s petroleum products expected to cater to the domestic markets, its exports are expected to fall significantly in the coming years, Mr Gupta said.

The writer was at Essar Oil’s Vadinar refinery on a media visit sponsored by the company

Published on August 07, 2016

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