Aim to improve refining capacity to 40 MT by 2018: BPCL

Even with a slight rise in oil prices, quarter-on-quarter the rise has been marginal, says P Balasubramanian, Director-Finance, BPCL. The impact of this change will be very small with no change in margins, he adds. Margins for diesel stand at Rs 1,500 and for petrol at Rs 1,800 currently for BPCL. The company plans to improve refining capacity to 40 million tonne by 2018, he says. Balasubramanian expects gross refining margins (GRMs) to be lower, at USD 6 per barrel, in the current quarter in comparison to Q3 on the back of diesel spreads.BPCL along with Oil India (OIL), Indian Oil Corporation (IOC) will be acquiring close to 30 percent stake in Rosneft's subsidiary. Balasubramanian says, while the deal is still underway, the acquisition will not have much impact on BPCL's debt to equity. Rosneft as well as Mozambique business have been giving decent returns, he adds. Below is the verbatim transcript of P Balasubramanian’s interview with Latha Venkatesh & Reema Tendulkar on CNBC-TV18.Latha: I wanted to ask you now with this recent hike that you all were allowed in petrol prices what are your marketing margins likely to be for this quarter especially for diesel and petrol? A: This is a price which has been in line with the international prices that is what is passed on. There is no change in the margins as such which continues to be around Rs 1,500 for diesel and Rs 1,800 for petrol.Reema: So, Rs 1,500 of margins for diesel and Rs 1,800 for petrol?A: That is right.Latha: What will your inventory gains be now that there has been the sharp rise in crude prices?A: If you see quarter-on-quarter basis it is more or less at the same level where it was in December. The prices are not very substantially increased. Any how we have another 15 days to go to see but it will be very marginal either way.Reema: What will the gross refining margin (GRMs) look like in this quarter as things currently stand?A: GRMs will be lower than the last quarter. GRMs will be flatly lower than that of the Q3.Reema: So Q3 was I believe at USD 7.6 per barrel? A: Here we are hopeful somewhere around USD 6 per barrel we will be clocking in, in this quarter.Latha: Only USD 6 per barrel this quarter?A: Yes. Reema: Reports suggests that you along with Oil India, all of you are looking to buy stake in the Rosneft assets. You will be investing about USD 4.4 billion for that. Could you tell us the rationale for that and what kind of an impact will it have on BPCL?A: As you know that BPCL foray upstream is basically sort of a risk mitigation and also have some equity oil in the long run. We will be having almost around 40 million tonne refining capacity by 2018. Strategically, we want to have at least a 10 percent of the same being covered by the natural heads of equity oil. That is one of the reasons for this and we have forayed in to the explorations stage earlier both in Mozambique and in Brazil which has given us substantial successes in those two places. Of course, having said that these are still under development. Both of them should be coming on stream somewhere around 2019-2020 based on the current plan. Latha: What is your capex in both these, now that you have Rosneft as well?A: Current year the capex in both Mozambique and in Brazil will lower in the sense that Brazil the appraisal program is currently on, almost completed. The study of the data will take almost 6-9 months. As such the development plan will be taken only after the appraisal plan is complete. As regard Mozambique is concerned we are now in the final stage of negotiation with the government to amend the exploration service contract (ESC). Afterwards, parallelly we are also doing that final investment decision (FID) part of it. Hopefully we should be closing FID by the end of this year. Final negotiations with the government could be completed in the next three months time. Also the Mozambique we are planning this to be done through the project financing. So, our contribution should be mostly from the equity side of it. It will be roughly around USD 200 million every year once we start construction of the project. _PAGEBREAK_Latha: At what price will they breakeven – Mozambique and even for that matter Rosneft?A: At current prices Mozambique has given us a fairly decent returns and Rosneft also gives us a reasonable returns on the investment.Reema: Could you quantify what reasonable return?A: I will not be able to quantify it at this juncture. Reema: Breakeven would be lower than USD 40?A: You can make the guess. Reema: What does this do to the total debt or the leverage that the company has? You indicated that the investments would be via project finance?A: As of today we are below 0.5 as debt equity on a standalone basis BPCL is concerned. We have long way to go as records to the debt equity levels that we are having for this one. So, as such the Rosneft impact will not have much on the debt equity side. However, having said that we have our capex plans and others overall we will be having roughly around 1:1 by end of next year. Latha: What is the bill, the report said that Indian Oil Corporation (IOC), BPCL, Oil India will together pay USD 1.46 billion for that 30 percent stake? What is you share and likewise in Vancouver?A: These are all still under confidential agreements and government approvals are still to be cleared for some of these things in both the sites. As such I don’t want to comment on the prices at this point in time. Latha: You can comment on another price, could your liquid petroleum gas (LPG) and kerosene under recovery concerns re-emerge if crude were to go to USD 50 per barrel? At what points do those concerns come back?A: I think LPG is no more in to that direct benefit transfer of LPG (DBLT) product and I don’t think there is any issue on the LPG side. Kerosene is also, government is planning to roll out the DBTL in the next 40 districts in the current year. Ultimately, that will be moving to the DBTL model in the log rum may be it will take some more time rather than what LPG has taken because of the state government’s involvement in most of this disbursal. We are not very concern about that. As such today the under recoveries on kerosene is very low. Latha: How much?A: I think less than Rs 10.Latha: On LPG you are square or you are making money?A: DBTL is a reimbursement; there is no profit or loss.Latha: So, no profit and no loss in that and in kerosene at the moment Rs 10 under recovery but if crude were to rise it could go up a bit?A: That is right. Reema: What is the sensitivity say for a USD 1 increase in crude prices how much will the kerosene under recovery go up?A: Roughly, around 20 paisa perhaps. I don’t remember exactly. Reema: What plans do you have with your stake in Indraprastha Gas (IGL) as well as Petronet LNG?A: These are long-term investments and strategic investments. Reema: No plans to monetise?A: No. not at all.Reema: Increase your stake then?A: I don’t think there is any window open for that in either of the companies.