Given such kind of demand destruction, we have reduced the throughput to 86% of the name plate capacity compared to 105% achieved in January-March quarter of 2021.
With the second wave of Covid-19 impacting demand by 30% in May compared to April or May in any year before the pandemic, Bharat Petroleum (BPCL) has reduced refining capacity to 86% this month from 105% in January-March 2021. N Vijayagopal, director of finance, BPCL tells Vikas Srivastava they expect demand to rise after June given the improvement in product cracks, which are higher in Q1FY22 compared to the best achieved in FY21. Edited excerpts.
What has been the impact of the Covid-19 second wave on demand and how is BPCL coping with it?
The second wave has impacted demand by 30% in May compared to any normal month of April or May before Covid-19. Given such kind of demand destruction, we have reduced the throughput to 86% of the name plate capacity compared to 105% achieved in January-March quarter of 2021. However, the plus point is improvement in product cracks (difference in price of a barrel of crude and a barrel of crude products) in the Q1FY22. The product cracks are even higher than Q4FY21, which was the highest achieved in whole of FY21.
Are you looking to increase exports to tie up demand-related issues?
The drop in demand in April-May 2021 is not as severe as compared to the same months in 2020. Also, with lockdowns being state-centric, the financial impact has been marginal. So we do not see exports as an attractive option, since the product cracks are not commercially viable. For us to make commercial gains, we will have to export both MS and HSD, which is not the case as of now. Also, given our refinery configuration, we are flexible to operate at any level. So we decided to reduce the throughput capacity instead of exporting at lower margins.
What could have led to addition of 2,400 retail units this year, when demand was affected almost the whole of FY21?
We were very aggressive in adding retail units over the last two years (FY20 and FY21) given our requirement to capture rural markets which were out of our ambit. We have added around 3,800 retail outlets in the last two years. We were earlier focussed on metros and cities given our rich legacy of Shell outlets. The additions were not impacted by the pandemic because we believe it will not last forever, and additions were more of a long-term strategic decision. Our share of MS and HSD following the additions will improve to 32% in the next two to three years from 29% at present. Going ahead we may not be as aggressive as we were in the last two years in retail expansions.
What are your capex plans for FY22 and for expansion of major projects held up in FY21?
We have earmarked Rs 12,000 crore for FY22, which is Rs 1,000 crore more than last year. This will be used for refinery and petrochemical plant expansion. In FY21, we had reduced the pace of the projects, but there was no embargo on projects. However, we are not taking up any new projects like Rasayani refinery near Mumbai, which requires huge amount of investment. So we are holding up on new projects given the unsure demand scenario in the near future.
How is the BPCL privatisation placed as of now?
Although, this is not the official view, but what I can say in the current situation [is that] there are two pre-steps that are in process before the financial bids can be invited. If everything goes as per our plan, we expect the pre bid formalities to get over by June. After that, the financial bids can be submitted by August. The SPAs could be signed around September, and the transfer of cash may happen by December.