BPCL to Focus on Low-cost Refinery Expansion

Introduction

Bharat Petroleum Corporation plans to achieve refining capacity of nearly 42 million tonnes by 2015-16 where the focus will be on low-cost expansions.

Kochi Refinery will see the largest capacity increase to 15.5 mt from 9.5 mt during this period. The recently commissioned Bina refinery, a joint venture with Oman Oil, will be up to nine mt as part of a ‘creeping expansion' exercise using the existing infrastructure.

Mr R.K. Singh, Chairman and Managing Director, told Business Line that in the case of the Mumbai refinery, two decades-old crude distillation units would be replaced by a brand new one. As a result, its capacity would go up to 14 mt from 12 mt.

More importantly, this will create more space and ensure better fuel efficiency in the refinery. “Strictly speaking, this is really not an expansion, but (it) will help improve capacity utilisation,” he said.

Investment outlay

The Numaligarh refinery in Assam will stay untouched at three mt though sources said that its capacity could be doubled at a later stage depending on the availability of crude.

These initiatives on the refining front will form part of BPCL's Rs 40,000-crore investment outlay over the next five years. The money will also be earmarked for entry into new areas like gas and petrochemicals with Rs 10,000 crore set aside for exploration & production.

After 2015-16, BPCL will look at the second phase of the Bina refinery expansion to 15 million tonnes, though Mr Singh reiterated that revenue generation for the project would remain top priority. The company will then consider the new Allahabad refinery (whose capacity could be 9-12 mt) if there is growing demand for petro-products in the northern region.

If these projects go according to schedule, BPCL's refining capacity would be a little over 60 million tonnes by 2020. “For the moment, though, we prefer the low-cost expansion route to setting up a grassroots refinery,” Mr Singh said.

Observers of the oil industry say this approach makes sense in the context of the refiners' losses incurred on selling subsidised fuel such as diesel, cooking gas and kerosene. When compensation from the Centre takes time in coming, borrowings increase (BPCL's alone is closer to Rs 24,000 crore) but the show will literally have to go on in terms of investments in key infrastructure.

Source

India Brand Equity Foundation, September 19, 2011