India’s largest government-owned refiner Indian Oil Corporation Ltd (IOC) saw its losses widening to Rs 3,285 crore during October-December 2015 from Rs 961.5 crore in the year-ago period due to higher inventory losses. However, with stable crude price in the past few months, the Maharatna expects better margins during January-March 2015. With refining margins under stress, IOC sees its future growth in the petrochemical and gas business. IOC’s director (finance) A K Sharma talks about the firm’s strategy and road ahead in an interview with FE’s Siddhartha P Saikia. Excerpts:
How do you see your gross refining margins (GRM) in FY15? How do you plan to improve your refining margins and compete with private players?
The GRM should be okay in the fourth quarter, as we did not witness the inventory losses. However, we cannot expect the fourth quarter GRM to recover the negative GRMs seen in the first nine months. (IOC reported GRM of negative $2.66/barrel during April-December 2015). We have taken several steps to improve our refining margins. These would show an impact on improving the margins in two-three years. For instance, IOC distillate yield has improved and have reduced energy consumption. Nothing can change miraculously, it has a gestation time. And, we have no control on global phenomenon and inventory losses.
Without the inventory losses, how much would have been your GRM?
The inventory losses were seen at Rs 15,107 crore in the first three quarters (of FY15). Without the losses, our GRM would have been $8.37/barrel. We have a difference of about 30-45 days from the day we buy the crude and finished product is sold. The inventory losses of other (PSU) refiners are one-fourth of IOC, primarily because they have coastal refineries. Many of our refineries are land-locked, so we are left with no option to cut down the time gap.
Are your entire losses (under-recovery) in FY15 been compensated?
We have not received an official communication regarding the fourth quarter compensation. We have seen in the news that government has decided to pay around Rs 5,300 crore for the quarter. If it’s true that all the losses in the quarter are covered. However, we would be left with an uncovered burden of Rs 1,189 crore in the first quarter. We would continue asking government to compensate us for the full losses.
Where do you see the next phase of growth for IOC?
At present, margins are not great in refining. After Paradip, there is no green-field refinery on the horizon immediately. We are planning brownfield expansion of refineries at Gujarat, Panipat, Mathura and Barauni. We would be aggressive in expanding our petrochemical business. Currently, we are the second biggest player in the market. Now, we gave acquired full expertise in the petrochemical business. We have already announced two projects worth about Rs 6,000 crore. In addition, we are looking at the gas business in the longer-term. Most of our liquid fuel customers would be converted into natural gas in sometime. We have already announced building a LNG terminal at Ennore.
Many energy giants globally are reducing their capital expenditure programme. What is IOC’s strategy?
Our capital expenditure for the current year would be Rs 15,000 crore. We are not cutting down on any of our expansion programme.
With subsidy being released on time and petrol and diesel price market driven, are you able to cut down on your debt?
Yes, with the timely compensation, our cash flows have improved. Our debt stood at Rs 52,500 crore as on March 31, 2015 compared with Rs 86,000 crore on the same date previous year. Going ahead our debts would further reduce.
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