Indian Oil looks to expand Panipat refinery capacity by 6 million tons

With refining margins on the rise, Indian Oil Corp. (IOC) is looking forward to a six million ton capacity expansion of its Panipat refinery as early as April 2013, according to sources. Refining margins, or the difference between international prices of crude oil and product prices, determine the profitability of a refinery.
Early assessments suggest the project may cost nearly US$1.1 billion. A proposal for the project may be presented for board approval in the first quarter of the next fiscal year.
Officially, though, the IOC maintains that it is weighing proposals to expand the 15 million ton Panipat refinery by 3 to 6 million tons and that preliminary analysis will take a couple of months to be completed.
With the recent global rise in product prices, especially petrol, margins started improving last quarter. IOC, which controls a majority of the refined products market in India, realized a margin of nearly US$6 on every barrel of crude oil it refined between October-December 2012.
“We are expecting margins to improve further in [the] January-March quarter,” a company official told Business Line. A majority of the margin boost will come through the use of crude inventories acquired at a cheaper price.
Since state-owned companies assess the viability of projects against a benchmark of 12% rate of return, rising refining margins improve the ability to obtain board approval for capacity expansion. According to sources, petrochemicals margins in Panipat are also improving beginning in the last quarter.
Though there is no plan yet to expand petrochemical capacity at Panipat, IOC has already announced its interest in ailing Haldia Petrochemicals (HPL).
“With our refinery located next door, we have a strategic interest in HPL,” an IOC official said, adding that the company would participate in a proposed stake-sell program of the West Bengal Government. IOC currently has a minority interest in the project.
A senior West Bengal government official, however, feels that the legal tangle involving HPL may deter public sector companies from bidding aggressively for HPL. The advantage, he says, goes to prospective bidders from the private sector who may settle issues outside of court with the existing lead private investor of HPL, the Chatterjee Group (TCG).
Meanwhile, the company is still evaluating a proposal to acquire a controlling stake in the upcoming 6 million ton refinery of Nagarjuna Oil Corp., Ltd., located at Cuddalore in Tamil Nadu state. The project has previously missed many deadlines and is now expected to be commissioned in 2014. (February 16, 2013)