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Aiming for Maximum Value Creation & Strong Competition
Amidst the volatile market pricing, demand fluctuations and feedstock challenges, Bharat Petroleum Corporation Ltd (BPCL), aspires to be country’s second largest distributor of petroleum products in India. In an exclusive interview with Chemical Engineering World, B K Datta, Director (Refineries), BPCL expresses his thoughts on maximising value creation.

What is the current share of BPCL in the Indian petrochemicals market; and as a refiner, what role will BPCL play to help India achieve the target of becoming Asia’s mega refining hub?
As a refiner, currently we have 30 million tonnes per annum production capacity across four refineries and the market share of 23 per cent, which we aspire to increase this to 25 per cent. However we have less refining capacity as compared to our market share in marketing and distribution of petroleum products. Apart from producing in four of our refineries located in Mumbai, Kochi, Bina and Assam, we buy about 5 MMTPA products from Public Sector Undertaking (PSU) & Pvt. Indian refining companies and also sometime imports. We believe in purchasing products at the market-driven price, in order to develop strong competition amongst all of us. Our Linear Programming Model across our business allows us best optimisation by allowing us to assess the areas where the margins can be maximised.

We plan to upgrade our refineries and add 10 MMTPA to enhance the existing capacity over next 4-5 years, however keeping a gap with marketing demand by 15 to 18 per cent short. Even in the mega role we do not plan to increase the capacity over the marketing level and will continue to source from other producers depending on the economies and available logistics. Our contribution towards creating a mega-refining hub would primarily be in terms of creating more and more competition by sourcing products at lesser price and even export if that would offer better value and profitability for BPCL.

You have an elaborate network for marketing distribution, how does the company offer products at most competitive prices?
We have a broad distribution network since the logistics cost and taxes form a substantial part of the product placement cost and that is a major concern while deciding upon the source of supplying to our buyers in a bid to offer them product at optimum price. We always go by the placement cost of the product, which is dictated by the source price and it varies in different parts of the country as per the pricing norms defined during the first deregulation. Moving products through pipelines is far cheaper and safer as compared to supplying in tankers, railways or road.

However due to lack of pipeline infrastructure in the country, the cost of moving product from one state to other goes up due to cost of Railways, Coastal or Road or combination of them. Further, each state has its own taxation structure and Value Added Taxes (VAT). However implementation of Goods and Services Tax (GST) would be a very good move for the industry and can go a long way to sort the pricing issues to a great extent.

What in your opinion is the need of the hour for making domestic industry globally competent?
I am a strong proponent of deregulation as the first step towards raising the bar of the Indian industry, which has already been taken by the Government. Though there were few hiccups in the beginning, but this has definitely created a healthy competition for all the players in the Indian market and created a level playground for the importers. From the customer’s perspective, this is a very good move as lot of innovation are taking place in products and services and opening new market exposure which is very much required for sustainable growth in the long run.

India has been relying on buying technologies rather than developing them, and I feel that technology is one of the biggest drawbacks for the Indian industry to become self-sustainable and last but not the least need to have appropriate infrastructure. Recently there is lot of thrust on R&D and innovation.

Although, we are a little backward in the technology and infrastructure, we have a very good ability to work in a much collaborative way. It would be very good to see the competitors collaborate and create a win-win situation for all, thereby giving benefit to the country also. I also feel that the Government needs to change its stance on subsidies. Rather than offering subsidies to offset the losses due to under recoveries, these should be avoided to stop malpractices.

What steps are you taking towards leveraging the efficiencies?
I believe that highest reliability from the safety standpoint, minimising the losses to optimise the operating cost and increasing yields for maximum value creation are the most critical factors towards leveraging efficiencies. From a single crude, we make around 30-40 products having each product priced differently. I would look for product maximisation and that is a challenge for the refinery, which is giving me maximum delta value over the crude oil and I would minimise the products, which are having less or negative value. We follow the linear programming optimisation decision tool to decide upon the best crude mix to get maximum yields. Tell us about the Linear Programming Model used by BPCL for maximising yields.

It is critical for any refiner to identify the right crude mix in order to maximise product yield, which is a deciding factor for Gross Refining Margin (GRM), the indicator of refinery’s profitability. There are over 1200 types of crudes available in the world with its own individual set of properties, which after processing yields products with different specifications, which is the deciding factor for pricing.

The linear programming model enables us to decide upon the right crude mix depending on the products required and derive maximum value from each processing cycle.

Hence one needs to understand crude mix fundamentals clearly before deciding upon the optimum crude mix to derive maximum optimisation in terms of yields, reducing production cycle and increasing turnover.

Now that BPCL is also getting into upstream with Bharat Petro Resources, how do you see that helping the growth of BPCL? We have around 27 wells so far and have got some success in the upstream oil and gas field. Mozambique gas discovery is by far the largest gas find and the reserves are estimated to be approximately three times that of KG D6, which is a huge success for Bharat Petro Resources Ltd, a 100 per cent subsidiary of BPCL. Presently the group is focusing on monetising the field, which would be a good move for our company. However we have chalked out the road map for the next five years for all our business units and are pursuing that.

What are the future plans of BPCL?
We want to gain good footprint in terms of capacity and capability of both refining and marketing. In marketing also, we have taken lot of directions in terms of infrastructure building. Right now, our major investment is in the refinery. Whatever we will be investing in five years, half of it will go in the refinery and the rest half will go into upstream, marketing and infrastructure. Mumbai refinery will have an investment of approximately Rs.5000 crore plus and we are looking at upgrading the facility and not expanding. Our main focus is how to make the refinery more niche, more reliable and more profitable. We are also looking for a lot of consolidations because the refinery has grown from 2 million to 12 million and also focusing on making value-added products and make a huge improvement in reliability.

At our Numaligarh refinery in Assam, we have started manufacturing value-added products which include microcrystalline and paraffin wax which have a huge market in India and are currently being imported. Our biggest investment will be on the Kochi refinery. We are looking at another train of refinery, which is 6.5 million capacity. The investment will be around Rs.14,000 crores. Apart from this, there will be a joint venture (JV) petrochemical in integration with the new Kochi refinery expansion.

We are trying to make some of the value products, which right now the country is importing. We have little choice because some of the products, which we are looking for are with guarded technology. So, when we are trying to make these products, we have no option other than a JV, as we will not be able to purchase them off the shelf in the market. We also have plans to expand the recently commissioned Bharat Oman Refinery Ltd (BORL), Bina, which will be carried out in two phases.

First phase of expansion would involve low cost modifications to get quick returns on investments for our stakeholders which amount to approximately to Rs.1200 crores.