In a significant policy shift, Indian Oil Corporation (IOC) has decided to buy crude oil from Indian traders in the spot market overseas in addition to foreign entities. The state-run firm has also taken some other steps like reducing the bidding time for spot tenders as part of a strategy to clinch more remunerative deals.
Of about 66 million tonnes of IOC’s refining capacity, just 12%, is fed by domestic crude. As far as imports are concerned, 30% of the sourcing is done via spot-market deals.
Currently, the PSU doesn’t enter into a spot purchase agreement with Indian entities; even an overseas trading entity, if registered in the name of an Indian national, can’t export crude to IOC.
AK Sharma, director (finance) at IOC, told FE: “This (buying from Indian traders) would open up more opportunities for the company.” He added that the company has cut down the bidding time for spot tenders to 11 hours now from 29 hours earlier, a move that would be more advantageous to the firm on the price front.
IOC controls 10 of India’s 22 refineries or about a third of the country’s refining capacity and processes some 1.31 million barrels of crude a day.
While term contracts are renewed annually, IOC intends to increase spot buys significantly once the new 15 million tonnes per annum greenfield refinery at Paradip in Odisha is fully operational, said Sharma.
Currently, IOC is buying nearly 1 million tonnes of crude oil each from Latin American region such as Mexico and Colombia. The share from this region could go up.
“After complete commissioning of Paradip refinery, which is expected by next year, we would see exactly how much Latin American crude we would need,” Sharma said. The firm is also buying Iraq’s Basra crude oil.
Meanwhile, the public sector oil refiners — IOC, Bharat Petroleum Corporation, Hindustan Petroleum Corporation and Mangalore Refinery and Petrochemicals — are likely to overhaul their crude procurement process. The government and the companies are working towards putting in place a “real-time model” and do away with the tendering mechanism of procurement.
“An integrated trading desk may be set up to buy crude oil, which would negotiate directly between the buyer and seller and also capture market opportunities such as buying distress cargoes,” said another IOC official, requesting anonymity.
The new mechanism, which would be sent for the approval to the Cabinet Committee on Economic Affairs by the petroleum ministry shortly, would help promptly purchase crude oil at lucrative prices.