OIL­ING ALONG

The mar­ket has given a big thumbs up to IOC’s plans to re­work its en­ergy mix and stay ahead of com­pe­ti­tion.

Business Today - - BT500 | INDIAN OIL - By Anilesh S. Ma­ha­jan

In June this year, when he took over as Chair­man and Man­ag­ing Di­rec­tor of In­dian Oil Cor­po­ra­tion (IOC), San­jiv Singh had to hit the ground run­ning. Even be­fore he took charge, two mam­moth goals were set – re­defin­ing IOC’s role in the com­ing sce­nario where elec­tric ve­hi­cles will dom­i­nate and roll­out of cleaner BS VI fu­els. The chal­lenges mul­ti­plied in Novem­ber, when Pe­tro­leum Min­is­ter Dhar­men­dra Prad­han ad­vanced the dead­line for the BS VI tran­si­tion in the na­tional cap­i­tal re­gion (NCR), by two years to April 2018.

In spite of th­ese chal­lenges, IOC’s av­er­age mar­ket cap rose to ` 1,82,654 crore be­tween Oc­to­ber 2016 and Septem­ber 2017 – 69.9 per cent up from ` 1,07,534 crore in the cor­re­spond­ing pe­riod a year ear­lier. The peak was ` 2,18,831 crore on May 16 this year. This took IOC from 22nd to the 11th slot in BT 500 rank­ings. Since Oc­to­ber, how­ever, the mar­ket cap has dipped 3.4 per cent till Novem­ber 20.

Singh’s abil­ity to ma­noeu­vre IOC is clear. He spent many years in the com­pany’s re­finer­ies – he set up, com-

mis­sioned and sta­bilised the green­field re­finer­ies at Pa­ni­pat and Paradip. But what has been help­ing IOC big time is its healthy bal­ance sheet and pric­ing re­forms un­der­taken by the govern­ment over past three years, both of which helped it in­crease mar­ket cap in spite of shrink­ing prof­its. In the first two quar­ters of this fis­cal, IOC earned

` 2,38,828 crore from op­er­a­tions, more than the ` 2,07,458 crore in the same pe­riod of 2016/17. Net profit, how­ever, fell from

` 11,391 crore to ` 8,245 crore. Last fis­cal, it had re­ported a 70 per cent rise in net profit to ` 19,106.4 crore and was judged In­dia’s most prof­itable pub­lic sec­tor en­ter­prise, sur­pass­ing even Oil and Nat­u­ral Gas Cor­po­ra­tion.

“In­dia’s en­ergy mix is evolv­ing rapidly. Re­new­ables, and now stor­age, are be­com­ing ma­jor dis­rup­tors. The govern­ment is also ac­tively pro­mot­ing gas and its in­fra­struc­ture. Nat­u­rally, this pushes en­ergy com­pa­nies such as IOC to change how we do busi­ness,” says Singh. He at­tributes the dip in prof­its to the surge in in­ter­na­tional pe­tro­leum prices and the re­sul­tant in­ven­tory losses. But that’s par for the course. He is, in fact, re­lieved that In­dia paid much less in sub­si­dies (`9,568 crore) in the first half of 2017/18, than in the same pe­riod of 2016/17 (`19,728 crore). IOC has a re­fin­ing ca­pac­ity of 80.7 mil­lion tonnes per an­num (MTPA), 35 per cent of In­dia’s to­tal. It is aim­ing at 100 mil­lion tonnes by 2021.

With the goods and ser­vices tax (GST) regime ex­empt­ing oil and gas, man­u­fac­tur­ers such as IOC have to credit ven­dors with in­put tax, but can’t pass it on to con­sumers. They also have to com­ply with pre-GST re­quire­ments. This re­sulted in an ad­di­tional outgo of ` 300 crore in the sec­ond quar­ter. The fig­ure may in­crease to ` 1,000 crore by the end of this fis­cal. Even BPCL and HPCL have been hit by the GST is­sue.

But Singh says IOC is in­vest­ing where it mat­ters. In the next three years, it will spend at least ` 15,000 crore to move to BS VI-com­pli­ant petrol and diesel. In the first phase, start­ing April 2018, the cleaner fuel will be avail­able in Delhi-NCR. Within another two years, it will be the only fuel sold in In­dia. “It is a chal­leng­ing task. We may not be able to con­vert the two re­finer­ies – Mathura and Pa­ni­pat, to pro­duce BS VI en­tirely by April 2018, but we are con­fi­dent we can pro­vide suf­fi­cient sup­plies for Delhi NCR,” he says.

The Chal­lenges

IOC will face some tough times ahead that will force it to al­ter its busi­ness model. Soon af­ter tak­ing charge, Rail­way Min­is­ter Piyush Goel said he would ex­pe­dite rail­way track elec­tri­fi­ca­tion, re­duc­ing In­dian Rail­ways’ diesel con­sump­tion. Other govern­ment tar­gets in­clude a big push to­wards elec­tric ve­hi­cles. A re­cent Nielsen study said 99.6 per cent petrol and 22.09 per cent diesel is con­sumed by cars and two-wheel­ers.

“But th­ese are less than 50 per cent of what our re­finer­ies pro­duce,” Singh told Busi­ness To­day, adding that to keep up with the con­sump­tion changes, the re­finer­ies would be strength­ened and fo­cus shifted to petro­chem­i­cals from fu­els. “Most of our re­finer­ies, es­pe­cially the new ones, can re­tune to pro­duce more petro­chem­i­cals,” he says.

New Part­ners

As the global mar­ket­place bat­tles glut in the gas sec­tor, IOC is rac­ing against time to com­plete its first LNG im­port ter­mi­nal at En­nore in Tamil Nadu, with a ca­pac­ity of 2.5 MTPA. The next will come up at Dhamra in Odisha, with the Adani group, and have a ca­pac­ity of 15 MTPA. This is apart from a 5 MTPA fa­cil­ity at Mun­dra in Gu­jarat. IOC has seven li­cences for city gas dis­tri­bu­tion net­works.

Singh was piv­otal in IOC join­ing hands with other pub­lic sec­tor oil firms to set up a joint ven­ture com­pany to build a $40-bil­lion in­te­grated re­fin­ery and petro­chem­i­cals com­plex. Po­si­tioned as the world’s largest in­te­grated petro­chem­i­cal com­plex, the plant at Rat­na­giri in Ma­ha­rash­tra will have a ca­pac­ity of 60 mil­lion met­ric tonnes per year.

This is apart from another pro­posal to re­vive dead fer­tiliser plants along with Coal In­dia and the Na­tional Ther­mal Power Cor­po­ra­tion. The plants are at Go­rakh­pur (UP), Sin­dri (Jhark­hand) and Ba­rauni (Bi­har).

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