Ruias-promoted Essar Oil, which is currently negotiating to sell a 49% stake in the 20-mtpa refinery in coastal Gujarat, is also investing nearly Rs 1,600 crore to boost revenues and make more products by processing dirtier crude oil.
Lalit Kumar Gupta, managing director and CEO of Essar Oil, in an interview with FE’s Siddhartha P Saikia, explains how the company targets to capture up to 7% of the retail fuel market and produce more naptha, petrol and propylene. Excerpts:
What is the strategy behind spending R1,600 crore to upgrade the Vadinar refinery?
Since starting in 2008, we have always been in course of making investments and making the refinery more sustainable. The first phase of the current investment was done last year. We have set up mild hydrocracker, a second hydrogen manufacturing unit and other facilities to use different grades of crude.
The aim is to process different type of crude and increase production of petrol and propylene. We have been able to process anything and every type of crude available. Till now, we have processed 91 different types of crude oil. The average API which we process is 23, which is very heavy. We can take more high-sulphur crude.
How would your refining margins improve due to these investments?
We are looking at earning an additional $1.50/barrel on our gross refinery margin (GRM) on the back of Rs 1,600 crore of investment. The company already invested Rs 400 crore during a 28-day planned shutdown of the refinery in September-October last year. A further Rs 1,200 crore will be invested to make additional upgrades in various refinery units over the next two-three years. At the end, it would boost earnings by about R800 crore annually.
What is the expansion plan for your retail network?
Now, we are operating 2,400 pumps and we are in the process of putting another 2,800 stations in the next 18 months. We are present across the country and are selling about 200,000 KL of petrol and diesel every month at present. This should go up to 500,000 KL once all these pumps become operational.
What is your long-term target for fuel retailing?
Our target is to reach 8-10 million KL. In course of time, we should be about 7% of the retail market. We are responsible for about 10% of the country’s refining capacity. We are not going to be the real competitor of the PSU retailers. It is very difficult to reach up to 20% of the market share in the fuel market. They are expanding and are market leaders. But, we will provide a good alternative to customers wherever we are.
Will it bring down exports?
Now, we export about 45-50% of our products. After expansion of retail market at home, we expect exports to shrink to 25%.
What about further expansion of capacity from 20 mtpa?
We have land, infra and environment clearances to expand. We want somebody to have a lot of financial muscle to fund it.
What products are you exporting?
We normally export naptha. We export gasoline when we get the opportunity and if we are not able to sell in India.
How would Rosneft coming on board help Essar Oil?
For Rosneft, it is the ‘look East’ policy, as it wants to diversify from Europe. For us as a refinery, we always look for crude oil supplier as stakeholders. Today, of course, there is a glut of crude oil supplies but we have also seen times when crude oil was scarce. It can again become become scarce in future.
Have you started buying crude oil from Rosneft? Would it be cheaper?
It has not started. That will start only when they are in this company. Transactions between two companies have to be on the arm’s length basis and there are official selling prices and transfer pricing guidelines, even though it could be a promoter.
By producing propylene, are you planning a petrochemical complex?
We have lot of products from where we can extract propylene. It is a valued-added product. That is another project we are doing toward petrochemicals. There are enough customers who wants to buy propylene for their downstream industries. Now, we would be producing around 180-200 thousand tonne. We would eventually be making more than a million tonne of propylene.
What is the spread of your crude basket?
We take roughly about 25-30% of crude oil from Latin America. But at times, it can also go up. After discovery of shale oil in the US, demand from Latin American crude has fallen. Production in the US has gone up by about 3-4 million barrels per day. So, these crude are now available in market.
The US is still importing 400-500 million tonneof crude oil. Of that, a chunk goes from west Africa and the West Asia. Rest of the crude oil comes from the West Asia and Mangala in Rajasthan. Generally, we do 60-65% procurement on long term.