OILING ALONG

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

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).