Despite incurring losses on account of
rising under-recoveries on sale of petroleum products, the second largest oil
marketer in India, Bharat Petroleum Corporation Limited (BPCL) has set ambitious
targets. Over the next few years, the company is looking to consolidate its core
business areas of refining and marketing so as to maintain its competitive edge,
and also plans to move aggressively in developing major oil and gas finds
within and outside India. Speaking to InfralinePlus’ Neeraj Dhankher, BPCL’s
Chairman & Managing Director, R.K. Singh talks about how the company’s fortunes
are on the up after the recent gas find in Rovuma basin in Mozambique. Excerpts:
Now that the price of diesel has increased by Rs 5 per litre, how has it impacted your under-recovery position? Do you feel the current round of price hike is sufficient to mitigate the losses?
recoveries on the sale of Diesel by the public sector oil marketing companies
was around Rs 17 per litre prior to the announcement of an increase in the price
by the Government. Out of the increase of Rs 5 per litre, Rs 1.50 is on account
of excise duty. As such an amount of Rs 3.50 per litre will go towards reducing
the extent of the under recovery that is currently being suffered. As the burden
of under recoveries is shared by the upstream companies, the Government and the
downstream marketing companies, this increase in price will mitigate the losses
to some extent.
As can be seen,
the increase in the price will not eliminate the under recovery on the sale of
diesel. However as diesel impacts all major economic activities and hence
affects all sections of society, any increase in the price of diesel has a major
impact on the rate of inflation. As such decision on revision of prices will
need careful consideration by the Government. At the same time, any downward
trend in international prices and any strengthening of the Indian rupee will
help in reducing the extent of under recoveries and thereby provide relief to
the oil companies.
The recent dieselisation of economy has been attributed to excess use of diesel by customers receiving supplies through Retail Pumps as against consumption by bulk consumers. What is your analysis of the situation? Is there is a need to check retail sales by increasing diesel prices?
The increase in the use of diesel in the transportation sector can be
attributed to the growing popularity of diesel vehicles. The difference in
the prices of petrol and diesel is leading to increase in the sale of diesel
vehicles. Increase in diesel prices will remove the price differential and
would make the option of using motor cars running on diesel unattractive.
Similarly there is a preference for diesel as a fuel for running machines and
equipment which can be attributed to the fact that it is cheaper when compared
to alternate fuels like Furnace oil. This arises mainly because the prices
of the alternate fuels are market driven. In these cases also the diesel
consumption will come down once the diesel prices are increased.
What is the progress on the Integrated Refinery Expansion Project at Kochi?
The Integrated Refinery
Expansion Project at Kochi is an ambitious project undertaken by BPCL. With an
estimated cost of Rs 14, 225 crores, this is the biggest project to be
undertaken by BPCL. On completion, the refining capacity in Kochi will increase
by 6 MMTPA. The project has ambitious timelines for completion by December
2015. The process of securing Environmental clearance has started and the same
is expected to be received shortly. Site grading work is currently underway.
Some of the initial contracts have been awarded and process packages have been
released. The Licensor selection for major units has been completed. BPCL is
also planning to enter the petrochemicals segment by using the raw material to
be produced at Kochi after the completion of the IREP project.
How has the increase in crude price and depreciation of Indian Rupee impacted your funding plans?
The increase in
the crude oil price and depreciation of the Indian rupee has an impact on the
cash outgo on procurement of crude oil. Without any corresponding increase in
selling price of sensitive petroleum products, the quantum of under recoveries
suffered by the downstream marketing companies has increased. Although the
upstream companies have contributed their share of the under recoveries by way
of discount on crude oil purchased, the compensation from the Government is
received after a time lag. Consequently, the downstream oil marketing companies
have seen their level of borrowings go up substantially. The interest cost has
also shot up. This has had an impact on their ability to raise funds and also
the cost of such funds. Notwithstanding these aspects, Oil companies have been
able to raise the required funds for meeting their capital expenditure
requirements. Oil companies are also looking at innovative means of funding
their projects with a view to reduce the extent of funds needed. Common User
Terminals (CUT), Build Own Operate & Transfer (BOOT) etc are some examples in
this regard. The increase in selling price of diesel and capping of the number
of cylinders per household will help in reducing the extent of under recoveries
and thereby improve the liquidity position. As a growing economy, energy demand
in India is rising. Oil companies will need to ensure that infrastructural
facilities are put up to meet the growing demand. All this will call for
substantial investments. This can be achieved without any problem once the
issue of under recoveries on sale of sensitive products is addressed at the
BPCL has been asked by ministry to adopt a cautious approach to future capital expenditure as the company was unable to spend its budgeted capital expenditure in 2011-12. Your comments.
BPCL has drawn
up an ambitious capital expenditure programme for the next few years. Several
large projects like the capacity expansion at Kochi have been initiated. In
marketing also a large number of infrastructural projects are being planned.
The company will also be spending large sums of money in the upstream sector as
the major oil and gas finds are monetized. BPCL is confident of being able to
raise the required resources for undertaking these projects. At the same time
BPCL is looking at different innovative models for funding the capex plans.
Your public sector rival, HPCL, is pursuing an aggressive expansion of its refining capacity. What is BPCL doing to maintain its competitive edge over its other public sector cousins, both in refining and retail segments?
BPCL has drawn
up an ambitious five year corporate plan covering its core areas of operations
in refining and marketing and also in the upstream sector. As on date, the BPCL
group has a total refining capacity of around 30 MMTPA. With market sales
volumes having already crossed this level, BPCL has drawn up plans to expand the
capacity at Kochi refinery and also to undertake low cost creeping expansion at
the newly commissioned refinery at Bina. This will enable BPCL to have access
to higher volume of finished products from its own sources in line with the
growth in the sales volume. BPCL has also focused on making investments in
building up its marketing and distribution infrastructure. In 2011-12, over
1000 new retail outlets have been commissioned. In addition, investments have
also been made in upgrading a large number of the existing outlets. A lot of
emphasis is being put on new outlets in rural areas. Investments are also being
made in setting up LPG bottling plants, depots and terminal and airfield
stations. BPCL is also looking at strengthening the gas business by having a
stake in new pipelines and LNG terminals. These investments will enable BPCL to
retain its competitive edge in the market. Apart from these, BPCL is moving
forward aggressively in developing the major oil and gas finds announced in
exploration blocks where BPCL’s exploration arm ie Bharat PetroResources Limited
has participating interests.
Work on BPRL’s shale gas block (EP413) in Australia seems to be coming up nicely. Do you have plans to bid for shale gas block next year? Is the company looking to increase presence in shale blocks elsewhere across the globe?
One well (Arrowsmith 2) has so far been
drilled in the shale gas block (EP413) in Australia, in the Perth basin, and
results have been encouraging so far. Five zones were targeted for fracturing,
and all five zones have shown presence of hydrocarbon. Currently flowback is in
progress. Further studies are to be conducted for firming up future plan of
BPRL is looking forward with keen
interest to the shale gas bidding round in India and depending upon the
evaluation of the data available during the bidding round, will be able to
finalise its strategy and bid accordingly.
BPRL has currently invested in Australia
and is open to evaluating shale gas opportunities outside India, but would
proceed only after proper evaluation and if the project is attractive and robust
enough to merit investment.
BPCL’s E&P foray in the Offshore Area 1 of the Rovuma Basin in offshore Mozambique seems to be coming up nicely. Do you think natural gas reserves in the basin can be a game changer when it comes to meeting India’s energy security? When are you expected to start exporting gas?
Experts are already talking of East
Africa being the next energy frontier. Gas in Mozambique alone is said to be in
excess of 100 tcf. LNG exports are the only option. India being geographically
proximal and with a huge demand for gas, would obviously be a logical market to
explore for selling this gas. However there are other options also and a final
decision will be taken by the consortium partners in due course. As per present
estimates, the first LNG cargo is expected to be by end 2018.
What, according to you, are the takeaways from Petrotech. How has been your experience so far?
It is by far
one of the biggest professional conference and exhibition which showcase the Oil
& Gas opportunities in India and abroad. It focuses on the global trends in the
development of technology in the field of Petroleum and Gas. The Petrotech
exhibition provides a platform to showcase the company’s capabilities and
exchange knowledge on emerging technologies. It also gives an opportunity for
networking and expand business prospects. It is also a means of promoting
bilateral relations with other nations through close cooperation in the energy
sector. As a country, India is looking at attracting foreign investment in the
energy sector. Similarly Indian companies are seeking to acquire participating
interest in promising exploration blocks. The event provides a means for all
the stakeholders to come under one roof and have an understanding of all the
relevant issues. Similarly service providers get an opportunity to share their
offerings which in turn facilitates the entry of the latest technology and
practices in the oil and gas sector into the country.
(InfralineEnergy thanks R K Singh, CMD, BPCL for sharing his valuable insights with our
readers. The column 'In-Conversation', is a platform to engage
experts from various sectors to share their views on the different
transformations happening in the Indian energy sector.)