Operating in NE is a challenging job

Numaligarh Refinery Ltd (NRL), situated in the Golaghat district of Assam has been conceived as a vehicle for speedy industrial and economic development of the region. The refinery was set up in accordance with the provisions made in the 1985 Assam Accord. Its MD Dipak Chakravarty spoke to HT on a range of issues. Excerpts:

What are the challenges of running a refinery in the Northeast?
The major challenge of operating a refinery here is inadequate availability of crude oil because of which, capacity utilisation is restricted. Besides, there are other challenges arising from constraints such as geographical remoteness, distance from potential markets and inadequate infrastructure.
How healthy are gross refining margins (GRMs) delivered by the NRL? How well do you compare the GRMs achieved by other public sector company?

GRM is a measure of operating profitability in the refining business. Our GRMs compare favourably with those posted by other refiners — both in public and private sectors. The GRMs of Indian refineries are generally benchmarked to the average GRM reported for Singapore refineries. During 2011-12, NRL posted a GRM of $11.97 per bbl against $8.97 per bbl for Singapore refineries.

Unlike other refineries which import most of their crude oil, NRL gets all of its crude from the oil fields in the Northeast region. What impact does this have on your overall business?  Does it also translate into the company being shielded from volatility in crude oil prices and related supply uncertainties?
Processing 100% indigenous crude from the North Eastern oil fields does present the advantage of relatively secured supplies. However, crude prices paid by NRL are linked to international market prices. Therefore, NRL is equally susceptible to global crude oil price volatility.

To what extent do constraints related to crude supply act as a hindrance to NRL’s expansion and growth plans?
There are two major challenges for NRL. One is the sub-economic size of the company’s refinery at 3.0 MMTPA, the other being restriction in capacity utilisation due to inadequate crude oil availability. Towards mitigating both challenges, NRL has drawn up a plan for expansion of refining capacity to 8.0 / 9.0 MMTPA by processing imported crude oil through the Dhamra port in Odisha.
Feasibility studies for the expansion project are in progress. Actions have been initiated for carrying out route survey and related activities for a new crude oil pipeline from Dhamra to Numaligarh.

What is the scope of developing new refining capacity in India considering long-term domestic requirement of petroleum products and potential for export market?
With country emerging as a global refining hub, there is potential for further increase in refining capacity to meet increasing demands both at domestic and global level.
With recent hike in interest rates by the RBI, the capital cost is set to go up. How well are you prepared?
The NRL’s debt equity ratio stands at 0.03. This has limited NRL’s burden from increase in interest rates on borrowed capital. With regard to investment for major upcoming projects, various funding pattern options are being explored.
Oil marketing is witnessing growing interest in relationship management with vendors, suppliers, contractors. What are the inherent challenges and benefits of building such healthy relations with these identities?
At NRL, vendors, supplies and contractors are perceived as partners along the path of the company's progress. They are regarded as stakeholders and continual efforts are being made for promoting their cordial relationship with the company. 


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