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 companies. Excerpts:

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.