Bharat Petroleum has decided to go for a module-wise expansion in capacity of the Bina refinery going forward on account of cash constraints and less-than-expected returns from the refinery.
Under the new plan, Bharat Oman Refineries (BORL), the special purpose vehicle which had built the 6-million tonne per annum (mtpa) Bina refinery, will invest smaller amount to set up smaller modules of 2 mtpa, stabilise the new capacity, generate sufficient returns and invest the returns in setting up the second module.
?Looking at the growth in demand for MS (petrol) and HSD (diesel), we will require a capacity of 12 mtpa at Bina. But at this moment, we have a huge commitment at Kochi too and Bina itself has not been able to deliver cash-positive returns. It is, therefore, difficult to double the capacity,? said BK Datta, director, refineries, BPCL.
He said the company will increase the first module of 2 mtpa mainly through de-bottlenecking which will require lesser investment and could turnaround faster for the company. Later, smaller chunks of investments will be put in as and when the returns start pouring in. ?The target will be to reach close to 12 mtpa in next five years. That will help us meet the incremental demand of MS and HSD,? Datta said.
The first phase (6 mtpa) of the Bina refinery, which was built under a joint venture with Oman Oil Company and was called as Bharat Oman Refineries (BORL). It started production from January 2011. While the refinery was able to reach its full capacity since a year of production.
At the time of commissioning of the refinery, the company had said it plans to go for a low-cost expansion of the refinery to 9 mtpa after the 6-mpta production stabilises. However, the plans could not gain momentum as the refinery did not turnaround as expected.
?We had invested up to R12,000 crore approximately after huge cost over-runs. So, it was difficult to turn around so quickly. Although we are cash positive, it was taking time to be profitable on a net basis,? he said.
Both BPCL and Oman Oil own 49% in the refinery while the rest is owned by financial institutions. The company had been planning to take the refinery public and raise money for its expansion. However, lacklustre capital market and less than satisfactory performance led to shelving of the fund-raising plans of the refinery.
BPCL has also laid a 935-kilometer pipeline from Vadinar in Gujarat to Bina to transport imported crude. The products from the refinery are primarily meant for the northern markets which were earlier being bought from Indian Oil’s refinery in Mathura and Panipat.
Currently, a major part of BPCL’s capital expenditure is earmarked for the expansion of its Kochi refinery from 9.5 mtpa to 15 mtpa by 2016 end. This will accrue an investment of R15,000 crore approximately and will increase the total capacity of the company from the current 28 mtpa to 34 mtpa.
Datta said the company currently has a gap of 6-7 mtpa in its refining capacity and sales and hence it has to depend on purchases from Reliance and Essar at a higher cost which eats in to the company’s bottomline.
?Although we want to increase our capacity, our plan is to never really match the volume sales of petro products to our refining capacity as that will give us the room for optimisation,? he said.
Analysts say while India has excess refining capacity owing to huge capacities by private players such as Reliance and Essar. However, both BPCL and HPCL have sales still higher than the capacity they refine and produce and they have to depend on the private players to bridge the gap. ?Therefore, it always makes sense to have your own capacity,? said an analyst from an international brokerage. He said India’s current capacity stands at 230 mtpa against a demand of 155 mtpa and hence almost 80 mtpa is exported every year.