The commissioning of Paradip Refinery by Prime Minister Narendra Modi on February 7 this year will take the total number of Indian Oil Corporation (IOC) refineries to 11.
The Paradip Refinery of Indian Oil, which is set to be dedicated to the nation on February 7, will massively boost the bottom line of the largest oil marketer to the tune of 20-30%, thanks to the latest technologies deployed at the facility that's coming up after a delay of 14 long years.
The massive delay in completing the project has led to a cost escalation of over Rs 3,500 crore at Rs 34,555 crore and an interest payout of Rs 7,500 crore, the company said.
The commissioning of Paradip Refinery by Prime Minister Narendra Modi on February 7 will take the total number of Indian Oil Corporation (IOC) refineries to 11. Its last greenfield refinery was commissioned in 1998 at Panipat, which has an annual capacity of 15 million metric tonnes (MMT). Paradip is also the first greenfield coastal refinery of Indian Oil.
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"This refinery will boost our profit by as much as 20-30% from next year. Testing and trial runs of various units have now been completed, with the petrol unit being the latest one to go on-stream on January 17. From next month, we will be operating at 60% of its 15 MMT capacity," IOC executive director and Paradip Refinery in-charge Ramjee Ram told PTI during a recent plant visit.
Ram said his optimism comes from the fact that the refinery is likely to boost the average gross refining margin of Indian Oil by $6-7 a barrel (nearly Rs 406.10-474.81) to $15-16 a barrel (nearly Rs 1,017.45- 1,085.28) next fiscal at the prevailing crude prices from the present low level of $10-11 a barrel (nearly Rs 678.3- 746.13).
He further said the refinery will be using mostly high sulphur crude though it can refine all types of crudes and one of the reasons for high profitability is this focus on high sulphur/heavy crude which is cheaper by $2-3 a barrel (nearly Rs 135.7- 203.5).
IOC hopes to procure the crudes from Latin America and Angola for Paradip, which are mostly heavy crudes. IOC will use the output to serve Odisha, Jharkhand, MP, Chhattisgarh and Andhra markets apart from export to Southeast Asian countries.
The refinery will turn 15-million metric tonne of crude per annum into petrol, diesel, cooking gas, kerosene, aviation fuel and naptha.
Ram, however, was quick to add that "at 7.7% the internal rate of return (IRR) of the project is not very lucrative. Ideally, it should not have been under 13-14%, and so now we must look at all recoveries within eight years."
The low IRR, a tool to calculate the return on investment of a project, is primarily due to the cost over-run and the high-interest cost so far incurred on the project due to excessive delays in the commissioning, he said.
As the project was delayed by 14 years, it led to a cost escalation of over Rs 3,500 crore, taking the total cost to Rs 34,555 crore and an interest payout of Rs 7,500 crore even before the project commissioned, Deputy General Manager for Finance Sukumar Banik said. The IRR would have been even lower had the company not refinanced some of its debt, he said. This has forced the company to extend its repayment period to 14 years from the earlier set deadline of eight years, he added.
The Paradip Refinery can produce Bharat Stage IV auto fuels now, but with an additional investment of around Rs 3,500 crore, its products can meet the Bharat IV norms, Ram said.
The sprawling complex in South-East Odisha will also have an around Rs 35,000 crore petchem project and is spread over 3,350 acres and was first mooted by the PV Narasimha Rao government way back in July 1992. The groundbreaking was done by the then premier Atal Bihari Vajpayee in May 2002.
Ram said further that unlike other refineries, which take up to three years to reach 80% capacity utilisation, IOC will reach that utilisation level by March 2017, and full capacity by shortly thereafter. From next month, it will be running at 60% capacity.
The project faced one road block after another, including the exit of the foreign partner, Kuwait Petroleum. The state government then withdrew its incentives for the project, setting it back by four years.
It also faced resistance from the locals and delays in approvals. Work was disrupted by two cyclones that hit the east coast in 2013 and 2014, Executive Director for Branding and Communication Indrajit Bose said.
The company is building a new pipeline between Paradip and Hyderabad to ferry the products to the Southern markets, he added.
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