Dipak Chakravarty, Managing Director , Numaligarh Refinery Limited (NRL)

Not only refineries but other industries too in the north-east are at disadvantage owing to their location. They face difficulties on account of inadequate infrastructure and transportation. The biggest constraint for refineries and industries in the north-east is lack of power. As far as NRL is concerned, we have made efforts to tide over power shortage by efficiently utilising our own captive power plant and steam turbo generator to generate electricity. The power generated by these two is sufficient to run our refinery.

The other challenges relate to logistical bottlenecks, lower availability of crude oil, and non availability of contractor's firms. Also, lack of `industrial inertia' tends to impede industrial growth in the north-east.

GRM determines profitability and operating efficiency of a refinery and our GRMs compare well with the international standards. NRL's GRM in 2010-11 was US$15.39 per barrel, which was one of the highest in the oil industry.

NRL has so far been processing crude oil from the north-eastern oil fields. NRL's crude procurement prices are linked to international market. Therefore, price volatility in international market influences NRL's crude procurement prices as well.

On the other hand there are certain disadvantages that we face for not importing crude oil. NRL's crude price is proportionally higher than the Indian crude basket because it is benchmarked to international prices to a pool of crude oil. In the recent past, the customs duty on imported crude oil has been abolished and there has been duty restructuring on petroleum products. As a result there has been a positive impact on NRL but negative impact on profitability of NRL. So processing indigenous crude oil is not giving us any advantage.

North-east has four refineries namely, NRL, Digboi Refinery (Upper Assam), Guwahati Refinery (Assam) and Bongaigaon Refinery. Together, they have a total capacity of seven MMTPA. Refineries in the north-east have not been able to saturate their capacity. On an average since 2003-2004 onwards all the north-east refineries have been working at 85 percent capacity.

NRL's refinery at 3.0 MMTPA capacity is sub-economic in size. Even at such sub-optimal size, NRL has to operate below its installed capacity due to inadequate availability of domestic crude. Taking small quantities of imported crude to saturate the demand of the refinery including transportation cost and taking out this product out of the refinery does not turn out to be economical. But we are thinking of expanding our refinery to a higher level of eight MMTPA even with imported crude. We are examining the economics of this planned expansion within the 12th plan period.

The market in the north east is limited. Presently, 80 percent of our products go out and only 20 percent is absorbed within the state. Since, country's petroleum growth pegged at five percent is very high, we are sure that the additional products will find a ready market. Particularly, so when BPCL is taking our products. We have estimated that the additional product that will come out of the refinery with its expansion will get absorbed within the BPCL supply zone itself. Therefore, going forward, product absorption is not going to be a negative criterion for not going in for expansion.

Over the past few years, India has emerged as a refining hub. On an overall basis, the country's production of petroleum products is in excess of demand.

Various plan projects of NRL are primarily being funded through the Company's internal resources. External borrowings from financial institutions are limited to the bare minimum. NRL's debt equity ratio as on 30th June, 2011 stood at 0.03, which implies that NRL is literally a debt-free company. Notwithstanding above, hike in interest rates will affect NRL to limited extent where borrowings would be necessary to meet specific requirements such as financing working capital. It would definitely have an impact on our ongoing and future projects and may require additional equity from us or debt funding.

Our wax project envisages production of paraffin and microcrystalline wax involving a project cost of Rs 577 crore. This project, upon scheduled completion by December 2013, would introduce high value wax products in the supply-deficit domestic and international markets, resulting in substantial value addition for the company.

Our second project is Naphtha Splitter Project. It is being implemented by NRL at a project cost of Rs 60 crore to facilitate production of 160 TMT per annum of petrochemical grade naphtha for the Assam Gas Cracker which is coming up at Dibrugarh district in Assam. The Naphtha Splitter Project is targeted to be completed by May 2012.

Then there are going to be other essential projects involving laying of a pipeline to get crude from Dhamra port in Orissa. The project would cost us anything between Rs 8,000 to 10,000 crore within the next five year plan. We also need to expand our MS product plant. So we will be undertaking some debottlenecking work as well.

We expect the wax project to give us nearly US$ 1.6 per barrel benefit resulting in our GRM going up by US$1.6. As such naptha cracker project is not really a commercial project in true sense but rather it is a requirement that would enable us to produce the required naptha. As such the project will not lead to significant appraisal in terms of profit to us.

During 2008-09, NRL commissioned a Marketing Terminal at Siliguri as a linked project to the NSPL project which was implemented by Oil India Limited. The NSPL has provided a smooth, reliable and economic mode of product evacuation ex-Numaligarh. During 2010-11, product evacuation at 2.07 MMT was higher than production at 2.01 MMT. Evacuation from the refinery comprised 20 percent by road, 28 percent by rail from Numaligarh and 52 percent through the Numaligarh-Siliguri product pipeline.

Siliguri marketing project is contributing significantly to the company's GRMs. Prior to the project 80 percent of products were going out of NRL through railways. Use of railway racks presented us with two to three disadvantages. The disadvantages included high cost due to longer lead distance travel. Empty racks also added to energy costs. To overcome all these hurdles we decided to lay a pipeline and transport our products through the pipeline to a convenient location - that is Siliguri. At Siliguri we have set-up a terminal from where rail loading is now taking place. The pipeline project has enabled us to save considerable distance between NRL and Siliguri. This saves us about 25 percent of the railway freight.

The Natural Gas pipeline from Duliajan to Numaligarh has facilitated utilisation of natural gas in lieu of naphtha as fuel and feed in the refinery. The project was completed and implemented in March last year. It is giving us good benefits as far as energy efficiency and the bottomline of the company are concerned.

The project's contribution to bottomline is to the tune of US$1.3 per barrel. As a result of the project the distillate yield has gone up by 4.5 percent. Previously it was 87.5 percent and now it has gone up to 91 percent, which is the highest in the country. Energy consumption has come down and has improved by seven to eight points after utilising natural gas.

The Natural Gas utilisation project prima-facie appeared to qualify as a CDM project and necessary steps required for registration of project as CDM project with UNFCCC have been taken by NRL. The estimated carbon reduction as a result of the project is going to be to the tune of 43,000 MT.

We had a mandate to set-up 510 retail outlets inside and outside north-east. Due to current pricing structure of petroleum products NRL's retail outlets outside north-east have become unviable. We have the license to set-up retail outlets. But unlike oil marketing companies such as Hindustan Petroleum Corporation Limited, and Indian Oil - we are not getting subsidies on sales of products. This differential is an issue with us.

As a result we have rationalised the spread of our retail outlets. Barring a few, we have handed most of these retail outlets to Bharat Petroleum. At present we have a total of 73 retail outlets out of which 63 are within the north-east. Within this region, with barely 6 percent of the total number of retail outlets, NRL has secured 13 percent market share. In the near future, favourable retail pricing of products permitting, NRL plans to achieve 33 percent market share in the north east with necessary expansion of the company's retail network.

Our refinery is favourably located for exporting products to several geographically contiguous countries. Diesel produced at NRL has been exported to Bhutan and Bangladesh. NRL's naphtha is periodically exported through the Haldia port.

The export element is not reflected in the NRL's books of accounts as the refinery's product exports are being facilitated through its holding company, BPCL.

As far as product export to Myanmar is concerned, despite several rounds of discussions that have taken place, the proposal seems unlikely to materialise in the immediate future owing to differences related to commercial considerations and issues regarding currency of payment.

NRL's fuel loss has to be viewed in conjunction with the refinery's high complexity factor, particularly on account of the hydrocracker unit. Our refinery's complexity on a national scale is 8.1 on a scale of 10. We have more complex units and in order to get better products we need to burn little bit more fuel. Now we have started using natural gas which has resulted in tremendous improvement in our energy consumption. Energy conservation for us begins right from the design stage to efficient use of fuel. Earlier NRL fuel reportedly experienced fuel loss of more than 10 percent. We are working towards bringing it down to single digit. The efforts are geared to further bring it down to 8 percent.

On the brighter side, higher complexity has translated into higher value addition and lower cost of production for NRL.

Be it NRL's contractors or suppliers, we consider them all as our customers. NRL is considered a good paymaster when it comes to paying for services and suppliers.

As a holding Company, BPCL has been a constant source of support and inspiration for NRL. BPCL's shareholding at NRL is 61.65 percent. During the decade long of profitable operations, NRL has been paying dividends to BPCL every year. Apart from the financial aspect, BPCL's demand for products in eastern and parts of Northern India are being met primarily through supplies from NRL.