Indian Oil Plans to Spend $2.8 Billion on Expansion

By Rakteem Katakey

Indian Oil Corp., the nation’s biggest refiner, will increase spending 23 percent to boost capacity even as it borrows more to cover losses from selling fuels below the cost of crude oil.

The state-owned company plans to spend 135 billion rupees ($2.8 billion) in the year ending March 31 to add processing capacity and build chemical plants, Serangulam V. Narasimhan, finance director, said in an interview in New Delhi. The refiner’s total debt has risen to 350 billion rupees from about 320 billion rupees in May, he said yesterday.

Indian Oil, set to increase processing capability 33 percent by 2012, imports about 75 percent of its crude and sells fuels below cost to help curb inflation. The refiner is adding capacity to meet demand that is rising as much as 5 percent annually in the world’s second-fastest growing major economy, Chairman Sarthak Behuria said in a separate interview yesterday.

“Raising money for planned investments has never been a problem as they can borrow from state-run banks,” said Niraj Mansingka, a Mumbai-based analyst at Edelweiss Capital Ltd., who recommends investors buy Indian Oil shares. “They need to increase capacity and upgrade refineries to improve cash flows and produce better quality fuels.”

The stock has climbed 29 percent in Mumbai this year compared with a 51 percent gain in the Bombay Stock Exchange’s Sensitive Index. Indian Oil rose as much as 1.7 percent to 559.35 rupees and closed at 551.25 rupees.

Losses, Costs

Pump sales were profitable in the last two months and are losing money in June because the cost of crude has risen, Narasimhan said.

The company’s cost of importing crude oil has surged to $2.5 billion a month from $1 billion in February, Narasimhan said. Crude prices in New York have more than doubled from a low of $33.98 a barrel on Feb. 12 on signs the worst economic crisis since World War II may be easing. Oil traded at $71.92 a barrel at 6:33 p.m. Indian time.

The government last raised prices of gasoline and diesel in June 2008 as oil surged. Prices were cut in December and January after crude slumped from a record $147.27 a barrel in July.

Indian Oil needs to add 3 million to 3.5 million metric tons of refining capacity each year, Chairman Behuria said. The company will commission about 300 billion rupees worth of projects this year, Narasimhan said.

The company and its units plan to increase refining capacity to 80 million metric tons of crude a year by 2012 from the current 60.2 million tons, he said.

Spending Plan

About 110 billion rupees will be spent this year on building new assets and 25 billion rupees on maintenance work at Indian Oil’s eight refineries, Narasimhan said.

The refiner is building a 15 million-ton-a-year plant at Paradip in eastern Orissa state and increasing capacity at refineries at Panipat in northern India, Gujarat in the west and at its Chennai Petroleum Corp. unit.

“Bulk of the investment will go into these,” Narasimhan said at his office. “There are so many projects on hand. We have to prioritize.”

Indian Oil has got approval for a 149 billion rupee loan for the Paradip refinery, according to SBI Capital Markets Ltd., which helped arrange the funds. The refinery is expected to cost 335 billion rupees, SBI Capital said May 14.