Kochi refinery to go on stream by Oct, aid GRM expansion: BPCL

BPCL has begun the first phase of commissioning of its 6-million-tonne Kochi refinery project in the last week of May and production is expected to start in the fourth quarter of FY17, says Director Finance P Balasubramanian. Once commissioned fully, the project will likely improve refinery margins by USD 1.5-2.0 per barrel, he adds.

From average margin of USD 6.3 per barrel done during the fourth quarter, Balasubramanian says, there has been marginal contraction in April and May months. He expects blended gross refining margin of USD 5-6 a barrel in the April-June quarter and USD 4-6 a barrel for FY17.

Against an inventory loss of almost Rs 1,000 crore posted in the fourth quarter, he expects a marginal gain in the April-June quarter.

Marketing margin on auto fuel is around Rs 1,800 a barrel on petrol and Rs 1,500 on diesel.Below is the verbatim transcript of P Balasubramanian’s interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18.Sonia: Can you tell us first about the Kochi refinery progress and what is the status check on that? You have had a very good performance but the next trigger that the street is watching for is the Kochi refinery what is the update over there?A: Kochi refinery project is on the schedule. We have started commissioning of the project from last week of May and it will be unit wise commissioning. It is a big project of a 6 million tonne, so the project commissioning of various units which has started from last month will go up to end October. It is phase commissioning, so current year the full production of this expanded capacity will come in the last quarter of FY16-17 though there will be some intermediate production during the period of commissioning. This project will take the Kochi refinery to a higher level of complexity of almost around 9.5 and then because of this project the whole refinery has been upgraded with the bottom up gradation program by which we will not be producing the lower products of furnace oil and bitumen. It will be ending up with the coke which will improve the overall margins of Kochi refinery by almost by around USD 1.5 to 2.0.Latha: I wanted to know exactly how the margins are panning out in the current quarter itself. You all have been able to take a couple of prices hikes and even when the prices have fallen we have not seen too much in terms of a price reduction. Will the April-June quarter be much better than the January- March quarter in terms of margins?A: January- March quarter we made almost around USD 6.3 on a weighted average basis for the quarter. The margins have since then contracted a bit. Of course now they are doing almost around USD 10 for diesel and almost around USD 11 for petrol. Compared to the last quarter they will be some marginal dip as of today, but we have to see that how the margins pan out in the rest of the period. We feel that it will be around USD 5-6 in this quarter. Latha: If it is USD 10-11 would not the margins be little higher overall blended margins?A: No, it will not be. I think three years quarters have been slightly better than that but thing is that first two months especially April and May the margins have been lower. So, you had those periods where the margins have been one – one and a half months the margin has been very low. Diesel went down as low as almost around USD 6.Latha: What about the aviation turbine fuel (ATF) margins? Do they tend to be higher than diesel petrol?A: ATF margins are always higher than diesel and petrol but ATF as quantity is not very big compared to, if there are margins dips in say petrol and diesel that cannot be compensated by even a higher rise in ATF margins. Latha: Why don’t you all announce the ATF prices along with the petrol and diesel prices? It always comes after markets have started trading leaving investors as well as consumers a bit guessing?A: Normally, it should be announced at the end of the same period at which the diesel and petrol are revised, perhaps some slipups in some periods because of the calculations and other things. However, otherwise normally we keep in along with the MS and HSD prices when it comes on a monthly basis.Sonia: You said USD 5-6 a barrel is the expectation that is for which quarter for the next quarter is it?A: For quarter one of this year. Sonia: On an average what could the blended gross refinery margins (GRMs) be for say FY17 or may be in first half of FY17? A: We are expecting the whole year somewhere around USD 4-6 depending upon how the fluctuations come and how the market moves but at least I can say an average of USD 6 is still is doable if the cracks continue to stay where it is. Latha: What about inventories, you had to take a little bit of loss in previous quarters? Now is that problem over and done and in fact will you be sitting on an inventory gain?A: Quarter four we had taken almost a Rs 1,000 crore of inventory loss on the product side. Based upon the current prices hopefully there should not be any inventory losses in the current quarter. There will be some marginal gains on inventory. Sonia: Can you give us a sense of what are the marketing margins that you guys make on auto fuels?A: We make roughly around Rs 1,800 for petrol and around Rs 1,500 for diesel. Sonia: Has that gone up in the recent past and is it expected to increase further?A: Not much of a change as regards to diesel is concerned. Petrol since de-control it has almost moved by around Rs 300-400 almost in the last three to four years. Latha: What is now the valuation of all your global assets? At one point in time your stock was valued very highly because of global assets, has that come down have you all done any inhouse valuations?A: We have not done any inhouse valuations. The market prices are known and then we have almost invested almost around 600-700 billion in case of Mozambique and Brazil is almost around Rs 400-500 billion. Brazil appraisal program is on expected. The reserve expectations and development plans will be laid out by end of this year. Mozambique we are on the final stage of closing the deal agreement with the government of Mozambique. We are hopeful that final investment decision (FID) will be closed by end of this year. The work will start on full 2017 onwards.Laths: We should expect an uptake in volume from these two in FY17?A: The production of Mozambique will come to marketing only somewhere around 2020-2021.Sonia: You said that the commissioning has begun in the month of May when will the refinery go on stream finally and what are the exact volumes and margins that you would expect the refining volumes and margins say over the next one to two years?A: Kochi refinery as I told is a unit by unit commissioning. It will be taking almost or up to late September -October for us to finish the whole commissioning of the various units. Last quarter of this year that is January- March of next year will be the first quarter in which we will having the production. We are expecting almost around 1.5 million tonne extra be produced from Kochi refinery to the FY16-17. As I told earlier the margins in Kochi refinery after commissioning of the Integrated Refinery Expansion Project (IREP) project will be USD 1.5 to 2.0 higher than what we are doing it today.