IOC plans Rs 25,000 cr capital spend this fiscal, says Sanjiv Singh

Auto companies' decision to end production of deisel cars won't impact the sales mix at Indian Oil Corporation (IOC) as maximum diesel is consumed by heavy vehicles. Also, sanctions on Iran and Venezuela and lower crude oil production from Nigeria and Libya will have an impact on global prices as wellas the company, says Sanjiv Singh, chairman, IOC in an interview with Swati Khandelwal.

Profit after tax (PAT) jumped over 15 times on sequential basis. What led to this?

On a yearly basis, we had a profit of around Rs 16,800 crore. On a quarter-on-quarter basis, there was a significant improvement predominantly because of higher inventory gain during the quarter.

Rupee appreciated in this quarter. Did it had any impact on the forex front?

Yearly, we lost close to Rs 1,800 crore towards the exchange. But in the fourth quarter, we had some advantage over the previous fourth quarter, which was also nullified. If the rupee is seen in terms of dollars, then volatility can be felt. This volatility led to price fluctuations, which had an impact on our profitability.

Did the sanctions on Iran and unrest in the Middle East had any impact on your supplies? Also, update us on your plan to source cheap crude from the US?

See, as far as Indian crude oil sources are concerned, then Iran has been a major supplier for us. Last year, we bought about nine million tonnes of crude from Iran. In fact, the absence of the total volume that Iran was exporting to India or to the global export market will have an impact on prices. At the same time, few other geopolitical factors like sanctions on Venezuela, lower production from Nigeria and Libya will have an impact on global crude supply as well as on the crude prices. But saying that the US crude is cheap is not right because the term contract signed with any country mentions the quantity of crude, but the prices are based on the prevailing prices of the month when the crude is lifted. So as far as volume of Iran's crude is concerned, then India and IndianOil, both have protected themselves to make sure that the supplies are not hit but we will have to pay as per the global prices.

IndianOil has some big plans for the city gas distribution (CGD) business and has a capex of around Rs 20,000 crore for the next five to eight years for the purpose.

When it comes to CGD, then we have a push towards infrastructure as well as the CG business. In fact, IndianOil along with two joint ventures (JVs), is doing business in the CGD and CNG (compressed natural gas) segment in 40 geographical areas. CNG is a cleaner fuel and is being pushed across the nation and infrastructure for it, such as gas pipeline, is being created. Similarly, we have worked aggressively on other fuels, including LPG (liquefied petroleum gas) and have almost 94% domestic penetration in the segment. So when it comes to domestic fuel, then we are going to provide a cleaner fuel option in the form of LPG and PNG (piped natural gas) to the nation. In the case of transportation fuel, we are providing a viable option in the form of diesel, gasoline and CNG.

Update us on your refining capacity expansion plans.

BS-VI projects are going on at our refineries. Apart from this, we also have capacity expansion plans in which few petrochemical units will be expanded while few new units will also be created. Interestingly, these plans are in the implementation stage at different refineries. If we talk about capex on corporation level, then we have a capex of Rs 25,000 crore for this fiscal.

Let's talk hypothetically about what will happen with the economy, financials and strategy if crude prices cross $100/barrel?

Our product prices are linked with international product prices. So if crude is priced at $100/barrel, then product prices will also move up in the same manner in the global market, and it will happen at our end. The negative impact that the company will face will come in the form of higher working capital requirement and interest burden. Interestingly, 9-10% crude processed at our place is consumed in the form of internal energy. So crude bought at higher levels will have an impact on internal energy. Also, total borrowing for all the users, including the oil marketing companies, also goes up. When it comes to the basic economics of the company then natural hedging is always available with it due to the product prices.

Will automakers' decision to stop making diesel engines impact sales mix?

India's transport sector is diesel-driven and maximum diesel is consumed by heavy vehicles, not cars. Secondly, the BS-VI vehicles available in the market need after-engine devices to meet the BS-VI emission standards, which is a costly affair and that is why the auto manufacturers are taking their call and have started focusing on a different segment. However, bulk diesel is consumed by heavy vehicles and I can't see any viable alternative of diesel in the near future. However, gas is an alternative, and it will supplement diesel.