The refining margins are still subdued due to lower price differential between the refined products and crude oil.
State-run oil refiner BPCL’s throughput has reached 100% of the pre-Covid levels backed by higher demand during festive season and is likely to sustain, given that the impact of Covid-19 has abated and the oil sector is back to near normal. N Vijayagopal, director-finance at BPCL, told Vikas Srivastava in an interview that the company is likely to end the current fiscal with a capital expenditure of Rs 8,500 crore against the initial projection of Rs 7,700 crore. Edited excerpts:
What is the level of throughput at your refineries right now?
We have reached the pre-covid level as far as refining throughput is concerned, buoyed by the pickup in demand for petrol and diesel during the festive season. Going ahead, we believe this level of production will be sustained. However, pricing is a concern and we will have to contend with an impact on profitability due to Covid-19.
Is there any improvement in gross refining margins (GRM) in the third quarter?
The refining margins are still subdued due to lower price differential between the refined products and crude oil. However, our GRMs are slightly higher than the Singapore GRM as they are a MS (Motor Spirit) based economy. The MS margins are comparatively lower than diesel margins, so we will have directionally better GRM than them. The normalised margins for diesel should be around $15 and for MS it should be $12 but it has dropped to $2 for MS and $3 for diesel, which is abnormally low. However, we see an improvement in demand which has picked up in India on an year-on-year basis as of November 2020.
How do you explain the rise in petroleum product prices?
The Indian petroleum prices are high because of higher excise duty which also has a cascading effect on state sales tax. Unless the economy normalises to past levels, the capacity to reduce the excise duty will not be there (with the government). On an average, the sales tax is around 27% in states and is charged over and above the price of products and the excise duty.
BPCL had initially planned to reduce the capex for FY21, what is the current status on that?
We had estimated a capital expenditure of `7,700 crore during the current fiscal. However, we are expecting to have a capex of Rs 8,500 crore this year, which is higher than projected. We are trying to catch up on some of the important expansion projects. The Kochi refinery expansion faced some delays due to the hurdles in securing the licences for some of the facilities.
What is BPCL’s inventory position during the quarter?
Inventories are slightly higher on the marketing side but otherwise are manageable. Unless the prices drop in the next 23 days – which is unlikely – we do not expect major deviation in inventories in the near future.