Higher Crude Oil Prices Mean Higher Product Prices: IOC Chairman Sanjiv Singh

Higher Crude Oil Prices Mean Higher Product Prices: IOC Chairman Sanjiv Singh

Rising crude oil prices would expand the need for working capital and raise energy cost for Indian Oil Corporation (IOC), the nation’s largest refiner and fuel retailer, chairman Sanjiv Singh said in an interview to ET’s Sanjeev Choudhary. Whether price controls come back to soften the impact of sharp rise in prices of petrol and diesel on consumers is a call that the government will have to take, Singh said. Edited excerpts:

Crude oil prices have risen more than 40% in the past six months. What does it mean for IOC?
We prefer to see lower prices because when crude prices go up, the product prices also go up. So, from the company’s point of view, it would mean higher working capital and higher energy cost. And the profitability of the company will depend upon the margins that are available in the global market at different prices range of crude.

Given the current oil price trends, do you fear domestic price controls could come back?
Let’s see. Ultimately, it’s a government call. But you see the government decided to free the prices after considering all the aspects. Earlier also, when crude prices were above $100 per barrel, diesel was controlled, and the government was providing that kind of subsidy. Now, if the government feels that the prices have to be capped at a certain level, then they will have to find out ways of providing subsidy.

Are you able to pass on the entire rise in fuel prices to consumers today, as you did when prices were lower? Some analysts are concerned that rising prices may have begun hurting IOC’s gross marketing margins.
We are changing the prices with the global prices. Otherwise, how do we do business? It’s a fairly transparent mechanism by which we are working it out. I am confident that the system is working. If crude goes to $100 per barrel, probably it willbe a different call since prices will be very high. But at least in the present range, it’s working.

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What happens if prices continue to rise like this?
Let’s see. Even before we can prompt that subsidy mechanism may again come in, it may be excise duty, it may be VAT reduction, it may be GST, because ultimately we all are expecting that these products would also get included in GST.

How are you dealing with increasing private competition in fuel retailing? They have taken away a market share of about 7-8%.
We are not afraid of competition. It brings in efficiency and more value to the customer. In terms of market share, you will see it going down by a few percentage points for Indian Oil because we are the largest player.

IOC had earlier expressed its desire to acquire GAIL. How seriously are you pursuing that?
GAIL is strong in gas infrastructure. We also have pipeline infrastructure. They are in gas sourcing, we are also in gas sourcing. So, from infrastructure integration point of view, it makes sense.

Are you trying to persuade people for this?
I don’t think it requires persuasion. Indicating our interest, and submitting our logic is good enough for us to indicate our seriousness.

Have you received any concrete offer from Saudi Aramco on buying stake in the proposed mega refinery?
It’s just talks right now. They cannot even give us a concrete offer because today we haven’t even frozen the configuration.

Have you shelved some of your planned brownfield expansion due to the proposed mega refinery?
No. Brownfield expansion will help quickly add capacity; it is low-cost expansion. In fact, we are expediting it because we need capacity.

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How is IOC preparing to deal with the rise of renewables?
We are not going to deal with renewables, we are going to deal in renewables. We are investing in three biofuel plants. By my standards, today they do not give the desired IRR (internal rate of return). But as a strategic move we have decided to invest in these. Oil and gas, I strongly believe, is not going to go away. Tell me, if you have to buy a single car today, will you go for the petrol car or a battery car? If it is your fourth car, you may go for a battery car. For a company like Indian Oil, the bigger challenge is to meet the oil and gas requirement till it is needed. If it is needed till 2050, we have to be there. I can’t say that I have switched to battery manufacturing, so I will not make petrol.

IOC is diversifying into fertilizer business. How is that progressing?
We, along with NTPC, Coal India and state fertilizer companies, are building three urea plants at Gorakhpur, Sindri and Barauni at a total investment of Rs 18,000 crore. All three plants will be ready by 2020. The demand for urea is going to stay strong in future. This is a good diversification for us as we know how to run process plants. Besides, these plants will become anchor customers for gas grid. Read More

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