'India can become the world's petroleum hub'
— Raj Varma, CEO - Marketing, Essar Oil Ltd
Essar Oil Ltd was among the first to enter the refining sector after it
was opened to private participation. The company's state-of-the-art 10.5 million
tpa refinery at Vadinar, Gujarat, is expected to commission in the last quarter
of the current year. Raj Varma spoke to Madhu Chittora on India's
prospects for a global petroleum hub and opportunities for domestic refining
Refining capacity in India is likely to go up from 132 mmtpa to 210 mmtpa,
possibly creating a situation where supply exceeds demand. Have you thought of a
strategy to counter such a situation?
Firstly, we do not believe that refining capacity will touch 210 mmtpa in the
near future. Barring our 10.5-mmtpa refinery, which is expected to be
commissioned in the last quarter of the current year, a number of plans for
greenfield capacity additions (e.g. Bhatinda and Paradip) and some of the
expansions of current refineries may not come through. Further, approximately
27.0 to 30.0 mtpa addition announced by some private refiners are aimed at the
export market. There is a worldwide shortage of refining capacity and the
product surpluses that may arise out of the additions to capacity that may
materialise in India would go towards meeting this shortfall. Additionally, the
demand within India itself is expected to grow at around three to four per cent
per annum considering that the GDP is projected to grow at between eight and 10
per cent per annum.
Is there scope for India to become the world's petroleum hub?
India is strategically located and can meet a very large requirement of
petroleum products in the world. For this, it is necessary that: a strategic
plan aimed at making India the world's petroleum hub is drawn up upfront;
schemes, which will provide incentives for setting up world-scale refinery,
should be drawn up and announced; investors coming forward to create such
world-class refineries should be extended full benefits that are currently
available to units set up in SEZs; and investors should be enabled to have
access to low-cost funds.
What are the prospects for refining companies to export petroleum, oil and
lubricants (POL) to other countries? Do you also have plans to export POL? In
this situation is it advantageous to have coast-based refineries?
As stated above, there is a worldwide shortage of refining capacity. Exporting
the products to other countries, particularly in Europe and USA, should not pose
any problem as the demand in these countries is increasing rapidly (due to
economic boom) and no serious additions to refining capacity are planned due to
environmental concerns. As of now it would appear that these countries would
continue to "outsource" refining.
When our refinery is commissioned, we will need to export some product to begin
with. We have plans to subsequently expand our refining capacity in stages. As
and when these expansions take place, we may have to export some quantities for
some period. As long as India is surplus it will always be advantageous to have
the refineries based on coastal locations.
Your plans for retail outlets?
We currently have around 750 retail outlets though all of them are not fully
operational due to the mismatch in the prevailing ex-refinery price and the
retail selling prices (RSPs). Our plan is to set up around 2,500 retail outlets
by end of this year and 5,000 ROs by end of 2008.
[01 May 2006]