IOC to put Rs 25,000-cr investments on hold

Anupama Airy

New Delhi, Sept 17: With shrinking refinery margins, Indian Oil Corporation (IOC) is planning to put on hold massive investments of over Rs 25,000 crore in three major projects, including new refinery projects at Panipat and Paradip and expansion of Koyali refinery in Gujarat.

Top company officials told The Financial Express that the investment review committee of IOC, in a recent meeting, carried out a critical review, examining the viability of its new six million tonne (mt) refinery project at Panipat, six mt refinery expansion of Koyali refinery in Gujarat along with its nine mt refinery project at Paradip in Orissa.


“Barring Paradip, the other two projects definitely stand postponed for the time being. In case of Paradip, talks are on with global majors like Petronas of Malaysia and Kuwait Petroleum Company for roping them a joint venture partners with a 26 per cent equity stake. The fate of this project will depend on the response from these companies,” IOC officials said.

Company sources said that although IOC is having second thoughts on making investments in these projects no formal decision has, however, been taken as yet on completely scrapping these projects. “Refinery margins have fallen to below $1 per barrel and with falling demand for high speed diesel (HSD) and naphtha, the refining processing capacity has also come down from more that 100 per cent to about 93 per cent.

Moreover, with excess supplies, refineries are forced to export incurring losses,” sources said.

In addition to this, investment committee of IOC also discussed in detail the post-AMP dismantling scenario, when starting April 2002, prices are going to be decontrolled and will be on import parity basis.
“In the past, public sector refineries were used to delay projects, thereby increasing the total cost. This is because they used to get assured returns on cost-plus basis and they never felt the urgency to improve. However, post de-control, refineries will have to be competitive and cost-plus formula will not be applicable,” sources added.

A detailed strategy note related to refinery margins i.e., dollars earned per barrel of crude processed, of refineries under operation is also under preparation by IOC.