We expanded business much beyond tanks and terminals into EPC just after two years of operations, since it was a challenge to set up the terminal business, says Jayanta Bhuyan, managing director, IOT Infra, previously an executive director with IOC. We also got into upstream services and renewable energy.
IOT Infra found the initial going tough, since historically, terminals were owned by public sector oil marketing companies or OMCs like IOC, Bharat Petroleum and Hindustan Petroleum. It took some time before Bhuyan could convince these firms of independent terminalling, modelled
on those in Amsterdam, Singapore, Houston, or Antwerp, where each terminal has multiple customers who share the facility, optimising costs. IOT Infra, which employs 3,000 people, mostly engineers, now operates 17 terminals but own only those in Mumbai, Goa, Chennai and Paradip, where work is underway.
The others are on a build and operate basis. It will have a capacity of 3.5 million in the terminalling business, once Paradip is commissioned.
Analysts said the concept of shared terminals saves costs for oil marketers, but only further de-regulation of petroleum products will unlock the full potential of the business. Oil terminalling is capital intensive, so a shared concept will benefit OMCs who are cash-starved, says K Ravichandran, senior vice-president and co-head, corporate ratings at ICRA, a ratings agency. However, the entry of private players into oil marketing in a big way can make the business attractive, but for that, the oil sector needs to be deregulated.
At present, the government has capped the prices of diesel, kerosene and cooking gas, due to which private players like Reliance Industries have exited the oil marketing business as they found it unviable.
The government, through the Petroleum & Natural Gas Regulatory Board or PNGRB, a body that that regulates laying of pipelines and city gas distribution networks has been encouraging shared resources, be it in terminals or in pipelines that carry petroleum products.
However, experts say OMCs cannot look to fully outsources such infrastructure. Companies need to strike a balance, said HPCL director (refineries) K Murali.
They cant totally be dependent on an outsourced model. IOT Infra, meanwhile, forayed into the non-regulated aviation fuel business, and has a
JV with IOC, Indian Oil Skytanking, to supply fuel at Bangalore and New Delhi
The foray into EPC saw IOT Infra acquiring companies with expertise in the business, forming joint ventures and floating new divisions that took up niche construction or design work, like IOT Design & Engineering, IOT Engineering & Construction Services Oman , PT IOT EPC, Indonesia and IOT Engineering & Projects, among others. The IOC EPC Groups civil infrastructure & power division is now implementing a 300 MW power plant for Maruti Clean Coal & Power Limited in Korba in Chattisgarh.
Worldwide, companies have identified that projects are best done when negotiated and given to an EPC contractor, with single-point responsibility, says Bhuyan. Speed is very important for economies of scale.
Bhuyan, however, says power and infrastructure sectors were a let down. We had created a separate power group, but the sector is in the doldrums. There are a number of opportunities, but projects are stuck. The power sector in India is expected
to face fuel shortages in 2012, says a report by Fitch ratings released in January 19.
The sector remains exposed to fuel price risk and structural issues in state power utilities, Fitch said.
Analysts say opportunities abound in downstream or refining EPC, but competition is rife too. Moreover, success depends on timely completion of projects. EPC projects run on fixed price, fixed time concept. Companies have to manage their costs, including that of raw materials, within this, says ICRAs Ravichandran. Moreover, timely execution is the key.
In upstream, the company provides directional drilling and seismic services, following its acquisition of Canadian company Newsco International Energy Services. Newsco has the potential of giving us a turnover of $150 million by 2015, says Bhuyan.
IOT Infra is now targeting revenues of over R15,000 crore over the next ten years, according to sources, but this would mean that the company should push aggressively overseas, acquire companies to augment capabilities, and raise resources to fund
It has already forayed into Saudi Arabia, Oman and Indonesia, and plans to tap the market through an initial public offering or IPO when the market conditions are favourable, after an earlier plan for an IPO in 2010 was put off due to the volatile market.
In January, IOT Infra had raised R100 crore from India Infrastructure Development Fund (IIDF), the private equity arm of UTI AMC.
We have new terminals to build, new companies to acquire, says Bhuyan. Acquisitions need money.