State-owned oil refiners IOC, HPCL and BPCL are fast losing out on their competitive strength against private sector rivals Reliance Industries and Essar Oil as the cash-strapped refiners find it hard to modernise facilities and protect falling margins on crude processing.
The widening gap in the gross refining margins (GRMs) ? the money a firm makes from processing a barrel of crude oil ? between state-owned firms and their private sector rivals indicate that the latter are way ahead in the business.
The GRMs of state-owned oil companies have declined sharply in the last three financial years while private sector refineries have improved their efficiency and reported a pick-up in margins. The situation has worsened this fiscal with a few government-owned refineries reporting negative GRMs in some quarters compared with handsome gains made by private sector players during the period.
GRM is an effective tool to measure the efficiency of any refinery. A higher GRM is also a reflection of the technological superiority of a refinery.
As per official data, the country’s largest oil marketing company Indian Oil Corporation (IOC) saw its GRM fall from $4.3 per barrel to $4 per barrel between 2010-11 and 2011-12 while Reliance Industries (RIL) increased its GRM from $6.6 per barrel to $8.4 per barrel.
The refining margins of IOC refineries at Barauni, Haldia and Mathura have dropped from $3.57, $5.42 and $5.62 per barrel in the year 2009-10 to $0.39, $2.38 and $0.59 per barrel in 2011-12. A similar trend has been reported in the case of other public sector refineries HPCL and BPCL.
Refining margin is the difference between the price at which oil companies purchase crude from oil explorers and the price at which they sell or transfer end products to their own marketing divisions or to other marketers after processing the crude at their refineries.
?Companies such as Reliance and Essar are processing large quantities of heavy crude or ultra heavy crude, which are 8-10% cheaper, which gives them a distinct advantage to increase the GRMs,? BN Bankapur, former director, refinery, Indian Oil Corporation said.
The sharp decline in PSUs? GRMs is due to their old and less complex refineries that also have locational disadvantage. ?Also, some of the public sector refineries import crude oil at ports having limited infrastructure, which do not permit berthing of large-sized ships,. something that economises the transportation cost of crude oil,? industry experts said.