We are hopeful of merging with Indian Oil: Gautam Roy
Interview with Managing Director, CPCL
 "We are hopeful of merging with Indian Oil: Gautam Roy")
Gautam Roy has taken over as managing director of Chennai Petroleum Corporation . In an interview with T E Narasimhan, he says the merger of CPCL with IOC will happen and high-level talks between India and Iran have started on Naftiran Intertrade’s (Swiss subsidiary of National Iranian Oil Company) shareholding. Excerpts:
CPCL reported Rs 233.14 crore loss in the second quarter of FY15 compared with a profit of Rs 120.33 crore a year ago...
In the second quarter, crude price dropped to $84-84 from $105 in the beginning of the year. As a country, we benefited. But when crude oil price falls, product price falls $20-25 for us. Two factors affected bottom line — inventory devaluation of Rs 550 crore and the crack (the difference in the price between diesel and crude oil price), which resulted in another Rs 600 crore. Physical performance was good. The planned output was 5.4 million tonnes, and it was achieved. Distillate yield was better by 1.5 per cent; fuel and loss dropped by 0.2 per cent compared to last year.
Will this continue? What is your outlook for Gross Refining Margin (GRM)?
Basically October crude price and crack would be low. But off late, we are finding crack is improving by around $1, this improvement means to around Rs 450 crore annually for CPCL. (The GRM for the quarter ended September 30 was $2.37/bbl as compared to $7.07/bbl a year ago.)
If the crack improves, our GRM will improve and if the current positive indications continue, our desire is to work will close to $4 (GRM target).
CPCL is a standalone refinery, which means risk is high because of external factors. Do you have any plans to merge with the parent (IOC)?
We are working on that. It is not that easy because we have an Iranian partner. We also took up the issue with our partner. As of now, they (the Iranian partner) are not interested in exiting. But we are working on that. I am hopeful that in the future it (merging with IOC) will happen..
CPCL reported Rs 233.14 crore loss in the second quarter of FY15 compared with a profit of Rs 120.33 crore a year ago...
In the second quarter, crude price dropped to $84-84 from $105 in the beginning of the year. As a country, we benefited. But when crude oil price falls, product price falls $20-25 for us. Two factors affected bottom line — inventory devaluation of Rs 550 crore and the crack (the difference in the price between diesel and crude oil price), which resulted in another Rs 600 crore. Physical performance was good. The planned output was 5.4 million tonnes, and it was achieved. Distillate yield was better by 1.5 per cent; fuel and loss dropped by 0.2 per cent compared to last year.
Will this continue? What is your outlook for Gross Refining Margin (GRM)?
Basically October crude price and crack would be low. But off late, we are finding crack is improving by around $1, this improvement means to around Rs 450 crore annually for CPCL. (The GRM for the quarter ended September 30 was $2.37/bbl as compared to $7.07/bbl a year ago.)
If the crack improves, our GRM will improve and if the current positive indications continue, our desire is to work will close to $4 (GRM target).
CPCL is a standalone refinery, which means risk is high because of external factors. Do you have any plans to merge with the parent (IOC)?
We are working on that. It is not that easy because we have an Iranian partner. We also took up the issue with our partner. As of now, they (the Iranian partner) are not interested in exiting. But we are working on that. I am hopeful that in the future it (merging with IOC) will happen..
CPCL is not able to raise capital from the parent due to the Iranian partner.
Yes. IOC is ready to infuse the money, but since the Iranian partner is there, we are not able to raise capital. IOC alone can’t infuse money; if CPCL issues rights shares, it will also increase the Iranian partner’s stake. The Iranian issue is bothering us. Direct capital infusion could not be possible, because of the US sanction on Iran. We have given various proposals to the Iranian company and high-level talks also on.
What are the benefits CPCL will get if it merges with IOC?
There will not be any separate balance sheet. Refinery margin and marketing margin will come together. CST (central sales tax)-related issues will get rectified.
Is CST another issue for the company?
Yes. Our primary objective is to increase our sales within the state. We are talking to the state government on this. If GST (goods and services tax) comes, the CST issue will be addressed. We are hopeful.
How CPCL's planned to improve its bottomline?
Considering various margin improvement measures in the areas of energy conservation and consequent reduction in fuel and loss, value added products and optimization of crude mix.
Besides, the resid upgradation (at a cost of Rs 3,110 crore), which will be completed by next December, will improve the bottom line.
Will you be looking at expansion, through brown field or greenfield projects?
Once our bottom line improves, definitely we will think of expansion. We have done a project study for a greenfield, unless we show positive result we cant take such projects forward.
What is the impact, due to closure of Madras Fertilizers Ltd and SPIC (both units were closed since government said these plants cannot use naptha)?
CPCL used to produce 50,000 tonnes of Naptha and was supplying to these units. Now all these need to be exported. For any export, normally there will be a loss.