IOC plans Rs 2,500 cr unit

Indian Oil Corporation (IOC), the country's largest refiner of crude oil and marketer of petroleum products, is likely to set up a second paraxylene plant at one of its refineries at an investment of Rs 2,500 crore.

The Fortune 500 company "" it recently improved its rank to 135 "" has identified forward integration into petrochemicals as its next big business opportunity. It is already operating a Rs 5,000 crore paraxylene and purified terephthalic acid plant at its 12 million tonnes per annum (mtpa) refinery in Panipat.

The paraxylene plant uses naphtha from the refinery and converts it into purified terephthalic acid, which is used to produce polymers.

A Rs 6,300 crore naphtha cracker complex is also under construction at the refinery in Haryana.

Besides, IOC is also planning around Rs 6,000 crore petrochemical complex at its upcoming 15 mtpa refinery in Paradip, Orissa.

"We are very bullish on the petrochemical sector. That is where we see our biggest business opportunities," said B M Bansal, business development director, IOC.

He added that the new paraxylene plant could come up at any of the company's major refineries "" Barauni, Panipat and Gujarat, among others. "We are still in the process of studying the location," Bansal said.

IOC, like the other auto fuel marketing companies Hindustan Petroleum and Bharat Petroleum, is also going slow on expanding its retail outlets in the country as a result of mounting losses from selling petrol and diesel at government-controlled prices.

IOC currently loses around Rs 90 crore a day due to selling petrol, diesel, LPG and kerosene at government-controlled prices. It is selling petrol at Rs 5.90 a litre below the desired selling price. The revenue loss, referred to as under-recoveries, for diesel is Rs 4.80 a litre.

"Our auto fuel retail business is suffering and so we are looking to intergrate our refineries with the petrochemicals business, where the demand is expected to grow as the economy grows at a good pace," said a senior IOC official, who did not want to be named.

The major petrochemical-producing companies in India are Reliance Industries and Indian Petrochemicals, which is in the process of being merged with Reliance. The two companies together control around 70 per cent of the market.

Integrated refining and petrochem operations "" with refinery output providing the feedstock for petrochem operations "" ensure high margins.

Either naphtha, produced in what is called the first cut of refining or natural gas is used as feedstock and is cracked (where the long hyrdocarbon chains are broken). This is then polymerised (hydrocarbon chains are re-arranged) to produce petrochemical products.

There is a hige scope for increasing consumption of petrochem products in the country. India's per capita consumption of polyester for example is 1.4 kg compared to 6.6 kg for China and 3.3 kg for the world.