Commissioning of RIL refinery likely on Sunday

Mukesh Ambani-led Reliance Industries is expected to announce the commissioning of its second refinery in Jamnagar later this week, contrary to speculation that it could be postponed to new year.

Reliance Petroleum is setting up the 29 million tonnes export-oriented refinery in Jamnagar and is due to pass crude through the first Crude Distillation Unit (CDU) on December 28, the birth anniversary of the late Dhirubhai Ambani.

Crude distillation unit is a front end process in the refinery to separate the crude oil into the various products like naphtha, kerosene, light gas oil etc.

The refinery, which will be fully operational only next year, will add nearly 20 per cent to the country’s refinery capacity and make RIL the largest crude oil refining company in India. RIL can claim depreciation of 7.5 per cent on plant and machinery if its refinery is commissioned for less than six months this fiscal, said an Ahmedabad-based sector analyst. “The cost of plant and machinery is about 80 per cent of the project cost,” he added.

Reliance Petroleum Chairman Mukesh Ambani had said in June that the refinery will start generating revenues from this year itself. The situation has, however, changed drastically since then. “On the back of global slowdown and less demand by industrial units, including automobile makers, construction companies and textile manufacturers, RIL’s inventory has piled up as buyers are not picking up stock from it as they expect crude oil prices to fall further,” said Vinay Nair from Khandwala Securities.

RIL controls 65 per cent of the domestic polymer market followed by Haldia Petrochemicals and GAIL. All these companies have been hit by the over 40 per cent fall in polymer prices. Analysts said in the past two months, RIL has reduced the prices of some key petrochemical products by over 50 per cent. “This will shrink the petrochemical margins of the company,” added an analyst from a domestic brokerage firm on the condition of anonymity.

The company’s otherwise healthy gross refining margin (GRM) is also expected to slide to single digit. “RIL could post a GRM of $5-8 per barrel against the Singapore benchmark of $1-4 per barrel,” said another analyst with a domestic brokerage firm. Refinery business contributes to over 65 per cent of RIL’s revenues. In the second quarter of this financial year, the company’s gross refining margin (GRM) stood at $13.4 a barrel, a premium of $7.4 a barrel over Singapore benchmark.

The general expectation is that the company will post dismal results in the third quarter on the back of global recession and decline in international crude oil prices. With its three primary businesses — petrochemicals, petroleum refining and margin and exploration and production not posting an impressive performance this quarter, the company’s top line will also be impacted.