Hindustan Petroleum Corp (HPCL) has obtained the go-ahead from the ministry of petroleum and natural gas (MoPNG) to conduct a feasibility study to shift its Chembur, Mumbai refining operations to a new facility being planned further south on the Konkan coast.
The move is expected to save the company up to Rs 1,000 crore per year, nearly double its profits during the first nine months of the current year.
A company official confirmed the development.
HPCL is in the process of starting its feasibility study and it may take up to a year before further plans are firmed up, said the official, who was not officially authorised to speak to the media on the issue.
The company officials had, in January, said the firm is looking at setting up a Rs 20,000 crore refinery on the Konkan coast, but had not clarified whether the Mumbai plant would be shut down or not.
The primary reasons for considering a lock, stock and barrel transmigration out of the city are the 3% octroi imposed by the Bombay Municipal Corp (BMC) and the non availability of land for expansion around its plant in Chembur, Mumbai.
The company, which has around half of its 13 million tonne refining capacity based in Mumbai, pays around Rs 630 crore per year as octroi to the BMC, a levy unique to big cities in Maharashtra.
In comparison, its profit for the quarter ended December was a mere Rs 31 crore. Meanwhile, the move would further increase the availability of prime land in India’s most congested city.
The firm has nearly 340 acres of sea-facing land in Chembur, held on a 999-year lease from the Mumbai Port Trust.
Analysts Jal Irani and Amit Mishra of Macquarie Equity Research estimate the value of the land at Rs 10,000 crore, or half the amount required for setting up a 15 million tonne refinery on the Konkan coast.
The analysts, who have also worked out a scenario for a similar land sale by HPCL’s neighbour Bharat Petroleum (BPCL), which holds the adjacent 460 acres, believe a shift away from Mumbai could significantly improve the companies’ operating metrics.
“Together, HPCL and BPCL’s land is around 5% of Mumbai city size. As the refinery is on premium sea front land, we believe it should earn a large premium... On our long-term crude oil price assumption of$75 per barrel, the 3% Octroi works out to US$2.3 per barrel,” the duo pointed out in a note to clients.
They also point out that the new refinery can further increase HPCL’s refining margins by another $2 per barrel due to the higher efficiency typical of new installations, thus taking the savings to a total of around $4.3 per barrel.
Based on HPCL’s typical refining throughput of around 50 million barrels per year at Mumbai, it would translate to a saving of $215 million or Rs 1,000 crore per year.
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