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Indian Oil and post reform challenges  

‘IOC is well-positioned to compete in new market environment’

Investor sentiments towards oil companies have seen a dramatic change after the government deregulated the prices of petrol and diesel late last month. On June 28, in the first trading session after deregulation, IndianOil's (IOC) market capitalisation breached the Rs 1 lakh-crore mark--a landmark for the public sector enterprise (PSE) hat has been reeling under the heavy burden of under-recoveries. But deregulation brings its own challenges as well. Is the company prepared to compete with private players in the new free market environment? In an interview to FE's Noor Mohammad, IOC chairman BM Bansal discusses his company's strengths visa-vis private players in the refining and marketing space. Excerpts:

The government has finally deregulated the prices of petrol and diesel. How will it impact IOC's cash flows?

Earlier, there was uncertainty about our cash flows as we lacked the flexibility to revise the prices of petrol and diesel in line with global crude oil prices. But now that the government has freed the pricing of these products, there will be some certainty about our cash flows. An improvement in cash flows will lead to a reduction in the company's borrowings. That would mean a reduced interest burden.

Post-deregulation, private players are expected to aggressively pursue their retail business. They can source products from their technologically advanced refineries at a competitive price. Is IOC prepared to face the competition?

We are well-positioned to compete in the new market environment even though we have social objectives to cater to. Our overhead costs might be higher, but we should be able to cover that on our lower distribution costs, deriving from the geographical spread of our refining facilities.

What measures are being taken by the company to improve its competitiveness in the retailing business?

We are beautifying our retail outlets to attract customers. We are also training our staff at outlets to improve customer services. Besides, we are going in for automation to monitor dealer stocks.

What is IOC's strategy for future growth in the retail business?

Private players are likely to focus on urban centres and highways to expand their retail net works. IOC already has a strong presence in these areas. Now, IOC is banking on the rural market to propel its retail growth. Viability of retail outlets is much higher in rural areas compared to urban centres because of lower land cost.

What are your growth plans for the refining business?

The country's petroleum consumption is 130 million tonnes per annum (mmtpa). The demand for petroleum products is growing at the annual rate of 4%. That means there is an additional demand for 5 mmtpa every year. Considering this demand trend, IOC is planning another refinery, which might be taken up for implementation after the Paradip project is commissioned.

While the overall consumption of petroleum products in the country grew at 3.4% in 2009-10, IOC's sales growth was 4.6%. Our refineries surpassed 100% capacity utilisation for the third year in a row and clocked a throughput of 50.7 million tonnes. IOC's pipeline network of crude oil and petroleum products logged a throughput of 65 million tonnes, the highest for the company.

What is your capital expenditure plan for the next five years?

We have planned an investment of Rs 50,000 crore over the next five years. Our first priority is to debottleneck our refining capacity. Petrochemical, exploration & production (E&P) and gas trading are the other priority areas for our investment.

What is IOC's investment plan for the E&P business?

We have participating interests in 21 oil & gas blocks. After Carabobo, we are looking for more opportunities to invest in a development or production block. We plan to make a further investment of $1 billion.

Petroleum retailing is going to be a lucrative business, post deregulation. Is IOC still bullish on its investment plans for renewable energy and nuclear power?

We have decided to venture into renewable energy such as wind and solar power in a big way. IOC has forayed into the wind energy business by commissioning a 21mw wind power project in the Kutch district of Gujarat, and the cumulative power generation from the 14 wind turbine generators has crossed 6 crore units since its commissioning in January 2009.

The company has launched solar lanterns in Orissa, Karnataka and the NE states. A phased all-India rollout is also being planned.

IOC has signed a MoU with Nuclear Power Corporation of India Ltd for investing in the nuclear energy sector. Nuclear is a green business. Its future is bright.

IOC is bullish on the petrochemical business. How is this business doing?

Our LAB (Linear Alkyl Benzene) sales was 1.24 lakh metric tonnes (TMT) in 2009-10 and over 19 TMT was exported to various countries. The company gained a foothold in new markets like Yemen, Bangladesh, Korea, the UAE and Australia.

The company's PTA (purified terephthalic acid) business registered a sales volume of 5,28,000 tonnes, which is a growth of more than 30% over the preceding fiscal. The share of revenue from the petrochemical business is growing every year. In 2009-10, the company earned a gross revenue of Rs 3,733 crore from the business. The sector might contribute as much as 20% of the company's revenue ten years down the line.

IOC made a total investment of Rs 12,256 crore during the fiscal, out of which Rs 3,266 crore went into the petrochem business. We have also commissioned the Panipat naphtha cracker and downstream polymer units with an investment of Rs 14,400 crore. IOC has completed the work on customer mapping and market segmentation as well as the channel network for polymer production available from the Panipat naphtha cracker.

How is the growth in IOC's natural gas business?

The company sold 1.89 million tonnes of R-LNG (regassified gas) in fiscal 2009-10 and the turnover grew by 3.9%. Green Gas, IOC's joint venture for undertaking city gas distribution (CGD) business, has been granted authorisation by the Petroleum & Natural Gas Regulatory Board for setting up a CGD project in Agra. Green Gas has also emerged as the lowest bidder for CGD projects in Allahabad and Chandigarh.
The Financial Express, Mumbai, July 05, 2010

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