Essar Oil to invest Rs 1,200 cr before sale to Rosneft

Fuel exports to fall in 2018/19 as focus shifts to local sales

Essar Oil Is planning to invest an additional Rs 1,200 crore in Vadinar refinery to increase margins by another $1.5 a barrel.

The company has already invested Rs 400 crore during a 28-day planned shutdown of the refinery in September-October last year. A further Rs 1,200 crore will be invested to make additional upgrades in the various refinery units over the next 2-3 years.

The shutdown or turnaround activity involved not just routine inspection and maintenance, but also entailed the conversion of the VGO-HT unit into a mild hydrocracker (MHC) unit and the setting up of facilities to process High Acid (TAN) Crudes. Ever since, the refinery has been able to convert its entire VGO (Vacuum Gas Oil) production into higher margin products.

According to C Manoharan, Director-Refinery, Essar Oil: “Post the shutdown, we have been able to modify our crude blend to process  higher quantities of ultra-heavy and high TAN  crudes, and increase the production of high value distillates. This has enabled Essar Oil to improve its crude and product mix significantly, which is reflected in our financial performance.”

Over the next 2-3 years, Essar Oil will invest Rs 1,200 crore to upgrade its naphtha hydro treater (NHT), isomerisation unit, continuous catalytic reformer (CCR) units and also facilities for further recovery of sulphur to further improve its margins.

Lalit Kumar Gupta, Managing Director and CEO of Essar Oil, said: “We are committed to making our refinery among the best in the world through efficient deployment of resources. We will take a path of safety and sustainability in reaching our goals. We believe in setting new benchmarks for the industry with our efforts. With the shutdown having been successfully completed, EBITDA and PAT in the current financial year is expected to be significantly higher because of the full availability of the refinery, stable crude oil prices, and our ability to optimally leverage on the investments in the MHC and high TAN facilities.”

 Essar Oil's fuel exports will sharply drop in 2018/19 as it ramps up local sales by doubling its retail network and turns some of its naphtha into profitable gasoline, its managing director said.

 

Rising fuel demand, driven by India's thirst for gasoline, is expected to help push the growth rate in the country's fuel consumption ahead of China's.

Essar Oil, which operates the 400,000 barrels per day Vadinar refinery in Gujarat, directly sells gasoil and gasoline in the retail market through 2,470 fuel stations and exports about 45 percent of its refined fuels output.

It plans to increase its retail sales outlets to 4,300 this fiscal year and to over 5,000 the next year, Gupta told reporters on Saturday, adding higher local sales would shrink Essar's export to 25 percent.

"All along, we were a country where people were aspiring for a bicycle and now we want at least two-wheelers (motorcycles and scooters)...65 percent of gasoline demand is from two-wheelers," Gupta said.

Expansion of units would halve Essar's naphtha exports to one cargo a month and raise annual gasoline output by 10-15 percent from the current 3-3.5 million tonnes, he said.

Essar is scouting for fuel storage depots at Rajasthan and Maharashtra in western India and the northern state of Uttar Pradesh to expand its local presence, he said. It has depots in Mumbai and in the southern cities of Kochi and Kakinadat.

The group, controlled by billionaire brothers Ravi and Shashi Ruia and with a presence across the oil and gas, steel, ports and power markets, wants to pare its billions of dollars of debt by boosting profitability and selling some of its assets.

It has decided to sell a 49 percent share in Essar oil to Russian oil giant Rosneft and could sell more, Gupta said.

The new sulphur recovery unit will help Essar process more very sour cheaper grades like Maya and Talam of Mexico and Patos Marinza of Albania, Gupta said.

Essar, one of Iran's largest Indian oil clients, is in talks to buy West Karoon oil of the Persian gulf nation, Gupta said.

Essar plans to build a 5 million tonne a year fluid catalytic cracker costing $1 billion-to-$1.5 billion, he said, without elaborating as the project is not yet approved by the company's board.

He also said low gas prices have forced the company to put on hold a plan to build petcoke gasification plant.