Essar Oil to double refining capacity of Vadinar plant

This will involve an investment of around Rs 35,000 crore going forward

Essar Oil plans to increase the capacity of its Vadinar refinery in Gujarat from the present 20 million tonnes to 40 million tonnes per annum (mtpa) in the next five years. This would involve an investment of about Rs 35,000 crore. Another investment of about Rs 40,000 crore would be made to set up an integrated petrochemical project.

“We have the land and environment clearance is available with us. But we would put the expansion plans in place sometime down the line, only after we have achieved a reasonable certainty on our leverages and have certain cash flows. We have to show to the world for the next year that we are on a comfortable footing,” Lalit Kumar Gupta, managing director and chief executive, told Business Standard.

Gupta had written to the oil ministry last month, seeking tax exemptions for the expansion plan. He did not divulge the contents of the letter but sources said the letter sought extension of the investment allowance in Section 32AC of the Finance Act 2013-14.

The new section was inserted to provide additional deduction to an assessee (company) engaged in the business of manufacture of an article or thing and investing a sum of more than Rs 100 crore in new assets during the period beginning April 1, 2013, and ending on March 31, 2015. Gupta is said to have sought extension of this provision till March 31, 2018.

The assessee would be for assessment year 2014-15, allowed a deduction of 15 per cent of aggregate amount of actual cost of new assets acquired and installed during the financial year 2013-14, if the cost of such assets exceeds Rs 100 crore.

“Right now, we want to optimise the refinery operations further. We have to run it for nine months and we are performing well. Our focus is to sweat the asset now,” added Gupta.

“Though we have a good certainty on our Ebitda, whatever we earn is spent on interest and depreciation. So our major focus this year is to convert our rupee borrowing into dollar and reduce overall cost of debt to 6.5 per cent from 12 per cent,” said Gupta.

As on March 31, Essar Oil’s debt stood at Rs 22,380 crore, with a market capitalisation of Rs 1,758 crore. During the January-March quarter of FY13, Essar Oil posted a net profit of Rs 200 crore, against a loss of Rs 515 crore in the same quarter last year. However, it paid Rs 920 crore towards finance costs during the quarter. For 2012-13, finance costs were Rs 3,424 crore, from Rs 1,387 crore in 2011-12.

The company commissioned its Vadinar refinery in 2008, increasing its capacity from 10.5 mtpa to 18 mtpa and then to 20 mtpa last year, at a total investment of Rs 24,000 crore. The refinery accounts for about 10 per cent of the country’s refining capacity.

It produces liquefied petroleum gas, naphtha, light diesel oil, aviation turbine fuel and kerosene. It can handle a diverse range of crude — from sweet to sour and light to heavy.