India’s largest refiner and marketing firm Indian Oil Corporation (IOC) is aggressively looking at buying equity in oil and gas projects. This is in addition to touch more than 100 million tonne a year refining capacity in the next five-six years. B Ashok, chairman, IOC, talks about the PSU’s ambitious plans in an interview with Siddhartha P Saikia. Excerpts:
IOC is a downstream firm, but speediously acquiring E&P assets. What is the strategy?
We are present in both domestic and overseas exploration and production projects. Overseas, we have stake in three producing states — one is gas field at British Columbia where we have a 10% stake. It is a 12-mt LNG project and our stake would be 1. 2 mt. We have some small production in Venezuela and the US. We have recently acquired stake in Russian assets. Directionally, what we are looking at is that in the next few years, our target is to get 10% of our oil from our own resources. This means we should have around 8-10 million tonne of equity oil and gas. We have an aspiration towards that and we are evaluating lot of options around the world in various continents. We would take a decision when we find the right move and the time is right.
Does it mean that your borrowings would go up?
Our debt to equity ratio is 0.5. We have a capacity to borrow and we have a very large business of current turnover of around Rs 3,50,000 crore. We will optimise our borrowings. In terms of returns, the upstream returns are much more attractive. This is probably the best window — prices are ruling low. And that is why we are going very aggressive. As a big refiner, we should just not believe in procuring crude oil but we should also have our own resources in terms of equity oil. We cannot be in a single business where there is lot of volatility.
What about expanding refining capacity at home?
With all our brownfield expansions in line, we would cross 100 million tonne mark. This would be done in 5-6 years.
How much this would cost IOC?
With all our projects and without considering the West Coast refinery, our capital expenditure would be to the tune of R1.5-1.7 lakh crore in the next five years. Of this, 25% would go for brownfield expansions and quality up-gradation. Another 25% would go into logistics and infrastructure development such as pipelines and marketing terminals. We expect another 25-30% for petrochemical and natural gas business and the remaining would go for E&P and some alternative energy.
How sooner would you finalise the West Coast refinery?
IOC has been looking for a refinery in the West Coast for a long time. Today, we along with the government has taken the decision that we would set up a world scale refinery that would provide benefits to everybody. A conscious decision has been taken that all the three OMCs — IOC, HPCL and BPCL — are going to set up a joint refinery in the West Coast. If we take a decision now, the actual refinery would be set up in the next seven to eight years. When we look at the demand at that time, there is certainly a scope for refinery of that size to meet demand. We will do it in two phases — certainly not lees than 40 mt in the first phase. We could also do the entire capacity in one time. Other decision we have taken is that it will not be only a refinery but also a petrochemical complex. Because parallel to fuel demand, petrochemical demand is also growing. So, we are looking at an integrated refinery cum petrochemical complex.
What is your outlook on growth of fuel demand?
There are several projections on growth and one of them say that in 2040, out of the total global demand, around 40% would come from India. Certainly, we see that there would be a tremendous growth in terms of energy demand. In terms of natural gas, the consumption of India is very low, as compared to other developed countries. The quality of fuel being offered would also undergo tremendous shift. Earlier, we were marketing diesel with 10,000 ppm of sulphur, which has now come down to 50 ppm. Today, we are talking about shifting to 10 ppm of sulphur content in diesel in the BSVI by 2020.
How much is the demand for premium fuel?
Nearly four years back, we had reached a level of 15-20% of total sales as premium fuel in petrol and slightly less in diesel. Then the price factor had come and sales have fallen. Now, that distortion has been sorted, due to which sale of premium fuels have been picking up. People who are conscious of driving comfort use the premium fuels. At the moment it is still quite low but it is expanding. We have developed the infrastructure and we would be able to do it.