New state-run refineries give RIL a tough time

By : Kalpana Pathak
Last Updated: Tue, Apr 23, 2013 20:20 hrs
Workers push a trolley at the Vadinar refinery operated by Essar Oil Ltd. EOL in Gujarat

The new refineries of Bharat Petroleum Corporation Ltd (BPCL) and Hindustan Petroleum Corporation Ltd (HPCL) are giving Mukesh Ambani's Reliance Industries Ltd (RIL) a tough time.

Compared to last year, RIL's domestic sales of refinery products to the public-sector refiners this year is down 13 per cent. While RIL sold 11,162 kilo tonnes (kt) of refinery products to these refiners in 2011-12, it sold only 9,678 kt in 2012-13.

"Commissioning of domestic refineries marginally impacted domestic sales," RIL told analysts last week.

A senior RIL official said the impact on the firm's marketing business could be more going forward, resulting in lower refining margins and realisations.

"In addition to the commissioned Bina and Bathinda, when Paradip (of Indian Oil Corporation) goes on stream later this year, our volumes may go down further. It is a continuous catch-up game. Further refinery expansions will impact our business," said a senior RIL official on the condition of anonymity as he was not allowed to speak to the media.

State-run BPCL commissioned its six-million-tonne-per-annum Bharat Oman Refinery in 2011, at Bina in Madhya Pradesh. It is an equal joint venture between BPCL and Oman Oil Company, wholly owned by the Government of the Sultanate of Oman. In the next two years, the refinery will expand to 9 mtpa by de-bottlenecking at the cost of Rs 2,500 crore.

BPCL did not respond to an email seeking details of the product volume it procures from RIL. BPCL CMD R K Singh said Bina refinery was currently operating at 110 per cent capacity utilisation, with gross refining margin of $8-10 billion per barrel. If similar capacity utilisation continues, the company expects Bina to break even in FY14.

HPCL, on the other hand, commissioned its 9-mtpa Guru Gobind Singh Refinery (GGSR) at Bathinda last March. "Going forward, we will reduce offtake from private refiners further as we expand our refineries," said a senior HPCL official.

Since its commissioning, the Bathinda refinery has sold household fuels worth Rs 3,403 crore; transportation fuel of Rs 14,415 crore and other other fuel, feedstock and petrochemicals Rs 2,015 crore. The total quantity sold by the refinery was 3.7 mt in 2012-13, Hindustan Mittal Energy Ltd (HMEL) - the joint venture between HPCL and L N Mittal's Mittal Energy that built GGSR - said in an email reply. HPCL did not reply to a email seeking details of product volume it procures from RIL.

Both partners hold 49 per cent equity stake each in HMEL, while the remaining two per cent is held by Indian financial institutions.

IOC plans to commission its 15-mtpa refinery at Paradip, Odisha, later this year.

RIL said, to offset the domestic decline, it had launched new country-specific export grades and was hunting for international markets to sell the produce.

"We get a premium on what we supply into the domestic market over what we export. So, to that extent, our margins and realisation would be impacted. To make up for this impact, we have begun looking at selling the produce to the African and far-east markets. Sometimes, the realisation from these markets is better than what we get from western markets," the RIL official added.

RIL earns $5 a barrel premium on its domestic gas and oil sales over exports. "Given that international markets have different specifications, we develop those grades and supply to those markets," the official said.

RIL runs two refineries at Jamnagar, Gujarat, with 1.24 million barrels per day of crude oil processing capacity, the largest at any single location in the world. Refining business contribution for the company increased sharply to 55 per cent in FY13 from 40 per cent in FY12.

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