Indian Oil Corporation’s Paradip refinery in Orissa is finally set to become a reality in March 2015.
This 15 million tonne project, being commissioned in phases at a cost outlay of Rs 34,555 crore, was first conceived nearly two decades ago. It was part of the Centre’s roadmap for joint sector refineries in the eastern, western and central parts of the country.
While Paradip would fill the void in the east, Bharat Petroleum Corporation and Hindustan Petroleum Corporation were to set up refineries in Bina (Madhya Pradesh) and Ratnagiri in Maharashtra with Oman Oil as the common ally.
BPCL was the first to get off the mark with the six million tonne Bina refinery in 2011. HPCL shelved its Ratnagiri plan and opted for the Bhatinda refinery in Punjab a couple of years ago. Oman Oil, meanwhile, decided to stick on with BPCL while the LN Mittal group teamed up with HPCL for the nine million tonne Bhatinda facility.
Kuwait Petroleum Corporation was initially tipped to be IOC’s ally for Paradip but this did not eventually materialise. The refinery was originally planned with a capital outlay of Rs 29,700 crore which has since been revised upwards by nearly 20 per cent.
“There has not been a massive cost escalation at Paradip,” reiterated IOC Chairman, B Ashok, at a press meet here on Saturday. On the contrary, changes in the scope of the project caused revisions in the final cost. For instance, a power plant was not considered initially but later factored in. In addition, the recent Orissa cyclone affected work schedules and getting things back on track was quite a tall order.
Going forward, a polypropylene plant costing Rs 3,150 crore is also being planned at Paradip over the next three years. A crude pipeline will link the refinery to IOC’s facilities in Haldia, West Bengal and Barauni in the Northeast. Diesel and petrol from Paradip will, likewise, be carried through a product pipeline to Ranchi and Raipur while an LPG pipeline will connect Paradip to Durgapur. IOC is now examining the viability of building another pipeline from the refinery to Vizag and Hyderabad.
IOC is betting big on Paradip to enhance its refining presence in the east and parts of the south. Ashok said he expected the domestic market to account for most of the output while some surplus petrol could be exported. Here is where the coastal location of the refinery will be a distinct advantage.
Paradip will enhance IOC’s refining capacity to 80 million tonnes putting it comfortably ahead of Reliance at 62 mt as well as BPCL, HPCL and Essar Oil. The company is now exploring the option of setting up another refinery on the west coast. These are early days yet though and if things go according to plan, the project could be commissioned by 2021-22. For a company that has traditionally had a strong presence in the north, a refinery on the west coast will put it on a par with other private and public sector oil companies.
On the subject of falling crude prices now at $72/barrel, Ashok said it was welcome especially with IOC’s borrowings now down by Rs 25,000 crore to Rs 61,000 crore. Interest costs had also reduced as a result. The downside though could be coping with higher floating stocks of inventory which are spread across pipelines, tankages etc. “In the long run, this will even out,” he said.
IOC is now focusing on enhancing its LNG presence with the Rs 5,000 crore regasification project planned at Ennore, Chennai. It is also part of a consortium for building 4,000 kilometres of gas pipelines coupled with ambitions to get into city gas distribution in Agra, Lucknow and Chandigarh. In exploration, the company is working on oil & gas fields both here and overseas at an outlay of nearly Rs 10,000 crore.