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Indian Oil Corporation to set petrochemical plants

The Economic Times:  April, 2015

New Delhi: Indian Oil Corporation, the country's largest refiner and fuel retailer, is set to spend about Rs45,000 crore over three years to build petrochemicals plants and LNG terminal, lay pipelines and upgrade its refineries, aided by a deregulation of fuel sales and oil price crash that have helped slash its debt. The state-run firm is also likely to benefit from a rise in crude oil prices since January without much price fluctuations. In the fourth quarter, there "should be no inventory loss", AK Sharma, director ( finance), told ET in an interview.

Inventory loss — a result of sharp fall in prices between June 2014 and January 2015, when refiners were forced to sell products at less than their cost — destroyed profits at most refiners in the quarter to December. A large inventory loss mainly contributed to IOC's losses during the three-month period. Lower crude oil price, coupled with deregulation of fuel at home, has also slashed the company's working capital requirement, reducing the need to borrow.

"The money from sales came back to us faster (after deregulation)," Sharma said. The company's debt fell to Rs52,000 crore at March-end from Rs83,000 crore a year ago, resulting in an interest cost saving of Rs1,500 crore in 2014-15, he said. Petrochemicals, gas and pipeline will be the focus areas for IOC's future expansion, Sharma said, adding that the company plans to spend about Rs15,000 crore in 2015-16 and a similar amount in each of the two succeeding financial years.

"We want to expand the petrochemicals business fast," said Sharma. The company entered the petrochemicals business just a few years ago but the performance so far has made the company "confident" of pursuing this segment "aggressively", he said. IOC is setting up two units to manufacture polypropylene and MEG, or ethylene glycol, at Paradip in Odisha, which will account for a significant part of the capital expenditure. "We are considering a few more units," Sharma said.

The future units will manufacture products that offer large-scale opportunity and are able to substitute imports, he said. The corporation sold 2.12 million tonnes of petrochemicals in domestic and overseas markets in 2013-14. The attraction for petrochemicals is mainly due to its disproportionate impact on profits compared to its revenue, Sharma said, adding that the petrochemicals business added Rs 1,000 crore to the company's profits in the first nine months of 2014-15 while the revenue was about Rs 12,000-14,000 crore. Another growth area the company is focusing on is gas. "Gas is the fuel for future. It will replace some of our liquid fuel demand," Sharma said.