1. IOC Paradip refinery cost revised by 16%

IOC Paradip refinery cost revised by 16%

The PSU refinery will now be ready in FY16 with a revised cost of Rs 34,500 crore

By: | Published: November 5, 2014 3:11 AM

Indian Oil Corporation (IOC), the largest refiner in the country, has seen the cost of its to-be-commissioned 15 million tonne per annum (mtpa) greenfield refinery at Paradip, in Odisha, going up by nearly 16% after it got delayed by a year to FY16.

The refinery, which was to be commissioned during June-December 2014, will now be fully ready in FY16 with a revised cost of R34,500 crore against the initial estimate of R29,777 crore.

The revised cost has been approved by the Board of the PSU firm.

“We target to start putting crude to the main crude oil distillation unit (CDU), which would be the biggest in India, by March. Once it is done, the downstream facilities have to be in place. Every unit in the refinery takes around two months to stabilise. We expect the entire refinery to stabilise in six months and we expect the throughput to be accounted for the complete year,” Sanjiv Singh, director (refineries) at IOC, told FE.

Previously, analysts expected the throughput of IOC to increase to about 60 million tonne (mt) in the current fiscal against 54 mt in FY14.

This was because the Paradip refinery was scheduled for commissioning in FY15. However, IOC is likely to process similar volumes of crude oil as last year owing to delay in putting the Paradip refinery on stream.

Now, the new refinery may add 5-6 mt to throughput in FY16.

In the current fiscal, IOC’s Ebitda (earnings before interest, taxes, depreciation, and amortization) is expected in the range of R15,000-17,000 crore as against R15,792 crore in FY14.

This is because though there is an improvement in marketing margins, the refining margins are under pressure because of rapidly falling crude oil prices and inventories burden.

Deutsche Bank in a October 19 report recommended ‘buy’ for downstream oil refiners on expectations of diesel marketing margin expansion. BofA Merrill Lynch in its October 20 report said direct gainers of lower crude prices are likely to be oil marketing companies like BPCL, HPCL and IOC, while Edelweiss Research expects these companies’ profits to rise by 20-30% following a dip in working capital requirements.

The Paradip refinery has already achieved 97.2% of mechanical completion. Most utilities such as power and water plants have already been commissioned, Singh explained.

The Paradip refinery, which would have capacity to produce nearly 3.6 mt of petrol and 6.3 mt of diesel every year, would start processing low-sulphur crude in the beginning.

Though Paradip is IOC’s most complex refinery and is capable of converting cheaper and dirty crude oil into products, it would begin with cleaner grades of raw material to meet the green norms, Singh said.

IOC would currently flow in crude oil delivered at the Paradip port into the new refinery. It will mull making long-term contracts in the next few months to feed the 300,000 barrels per day coastal refinery.

Singh explained that IOC doesn’t source crude oil on a refinery-to-refinery basis, but buys taking into account the entire demand of the refiner.

“Not all suppliers renew contract as per the calendar or fiscal year,” he said.

Globally, performance of refiners has been lacklustre because of overcapacity and sluggish demand.

Most of the recent refining capacity addition has taken place in Asia-Pacific and West Asia, said an article in Forbes.

On September 4, Reuters reported that Kuwait Petroleum aims to pick up a significant stake in the Paradip refinery and supply about 60% of the oil needs of the plant.

However, there has been no official confirmation on the stake sale.

  1. H
    Hari Hukmani
    Nov 10, 2014 at 7:40 pm
    It seems there is no accountability in the co. One CEO has to be given total resposibility for the management. These cos are wealth destroyers
    Reply

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