Refining in India has come a long way since the country's first refinery, Digboi, opened in 1901. Technological leaps and aspirations towards global competitiveness mean that today, India is home to the world's largest refinery at Jamnagar on the country's west coast, operated by Reliance Industries and accounting for an incredible 2% of the world's refining capacity.
Quality has never been an issue for India's refineries. AK Arora of PetroFed points to the fact that it is not just the private sector players that have changed the industry; from as far back as the 1980s, India's state-owned refining companies were benchmarking themselves against global standards of refining. This is what has led India's refining quality to be so high today. "This benchmark exercise was a special challenge because it was done in a period when India was absolutely destitute of hard currency. Yet the PSUs spent valued resources on this, modernizing major refineries as well as those smaller and remote. We set our targets high – true, excellence is not always achievable, but you always have to aim in that direction." He concludes; "Indian refineries kept on improving quality and capacity at the lowest cost for decades. Now it is only natural that we are winning in international markets."
This drive by the PSUs to strive for international refining quality resonates with India's desire to increase self-sufficiency and take advantage of the relatively low cost of refinery building and operation in India, and today the government is pushing for an increase of annual refining capacity in the country to 240 million tons by 2012, both for the home and domestic markets.
Bharat Petroleum Corporation Ltd. (BPCL) is one such company paving the way to India's increased refining capacity. Today, the company's capacity stands at 30 million tons per annum, but in order to grow this capacity at the same rate as India's GDP, the company has initiated a plan involving brownfield expansions at its refinery in Kochi, and has recently begun crude processing new greenfield refinery at Bina, with a current capacity of 120,000 barrels per day, expandable to 240,000 barrels in the future.
Hindustan Petroleum Corporation Ltd. (HPCL) accounts for 10% of India's refining capacity, but with a petroleum product market share in the country of 20% and responsible for selling 40% of the nation's lube oil, the company is fighting a constant battle to refine enough crude to supply its customers. For this reason, a new refinery has been commissioned in Bathinda in partnership with Indian industrial giant Mittal.
| Uhde - a global first
Uhde, part of the ThyssenKrupp group, has been in India for over four decades, and the Indian subsidiary has worked on over 500 global contracts since that time. Dr. Benno Lueke, managing director of Uhde India, explains how the Indian subsidiary was responsible for taking Uhde's first steps into the oil and gas industry on a global level, at the time that the sector was just starting to liberalize in India: "after the refinery sector opened up, Uhde India was employed to provide engineering services to India's first public sector refinery at Mangalore. Previously in India, this work had only been given to Engineers India, as all of India's refineries were owned and operated by the public sector. The moment the refining sector opened up to the private sector Uhde India got involved. We started with the Mangalore refinery, and since that project we have worked on almost all the refineries in India. This is a competency that Uhde India developed on its own, and it has been instrumental in driving the business here."
It is the fact that Uhde India developed capabilities in the refining sector separate from the main Uhde group that makes it such a unique story. Today, the Indian subsidiary accounts for 20% of Uhde's global workforce, and following Uhde India's successes in the oil and gas sector, a new global business unit comprising the best of Uhde's oil and gas talent is being developed in order to take on projects around the world. "Combining forces," says Lueke, "we hope that we will be qualified for more projects in India, which will enhance our oil and gas business significantly." As well as offering EPCM and PMC services for various refining units, along with Uhde's refining technologies division, the company can also offer hydrogen plants, sulphur recovery units and aromatics extraction processes. It seems that for Uhde, India has been the first step along a long and fruitful journey into the hydrocarbon sector, and will play a continuing role in the years to come.
S Roy Choudhury became chairman and managing director of HPCL in August 2010, after 20 years with the company across the business, from marketing to sales, refinery, pipelines, operations and distribution. Today, Choudhury also serves HPCL as director of marketing. In his interview with Focus Reports, he explains the need to expand the company's refining capacity on a continuous basis: "even after you take into consideration this new refinery, HPCL will only be able to meet 56-57% of its requirement, because of the company's growth rate." Projecting sales figures of 40 million tons by 2015-16, the company has resolved to expand its refining operations in both Mumbai and Visakhapatnam. However, budget constraints mean that these upgrades in capacity have to happen gradually: "We are not going for the full capacity straight away because of the costs involved. Today we are walking on a tightrope economy, especially the public sectors. We have a lot of borrowings, and already HPCL's debt equity ratio is very tight. We concluded it would be better to start at 9 million tonnes, start to bring in revenue, and then go for another 9 million tons."
One of the companies that supported the most the development of the Indian downstream sector has been Engineers India (EIL). According to AK Purwaha, its chairman and managing director, "today, to EIL's credit, there are 20 of 24 refineries in country 9 of which were grassroots refineries built by us and another grass root refinery at Bathinda is close to completion. In this sense, Engineers India is unique, being probably the only company in the design engineering and project management consultancy segment who have more than 50 large refinery projects to its name."
|Lalit Shingal, managing director, Enereff Engineers|
Other PSUs, not traditionally involved in the refining sector, have seen the opportunities available in the sector for growth. Applying its expertise in the fertilizer sector to the refining industry, Projects & Development India's (PDIL) main growth driver today is project management for various refining units, working both in India and abroad.
There are not just opportunities for public sector players to take advantage of the silent revolution happening in the Indian refining sector. Engineering consultancies such as Enereff Engineers were quick to take advantage of the newly liberalized market, but of course had to overcome the traditional boundaries facing any new service provider in the oil and gas industry; building up a track record and gaining the confidence of clients, in this case, the PSUs who already had existing facilities in the country. Enereff's managing director, Lalit Shingal, explains that "once one of the refineries of IOCL had accepted us, there was less resistance with the second unit of the same company: acceptance was a little smoother, faster, better, as they had seen our work."
Shingal has noticed some major changes in the refining industry since he began his company at the time the liberalization of the sector was beginning to occur. As well as noting that today, Indian refineries are processing more heavy and sulphurous crude than ever before, he believes that the largest change has been in the scale of refineries being built and upgraded: "Today we talk of processing over 9 million tons per annum of crude in a single refinery. This has enabled refiners to install a lot of equipment that would otherwise have been non-viable economically." The complexity of equipment needed in such refineries provides plenty of opportunities for niche engineering consultancies such as Enereff, and today the company's main focus is working with Indian Oil at their new refinery at Paradip, providing heat exchangers in order to maximize the plant's efficiency.
Increasingly however, the PSUs that have been responsible for building up India's strength as a refiner are today looking to diversify their activities in order to continue their path to sustainable growth. RK Singh, newly appointed chairman and managing director of BPCL after a long period as director (refineries), spoke in detail to Focus Reports about his company's foray s into the E&P sphere, as well as its plans to move into gas marketing, city gas distribution, petrochemicals and power generation. He also summed up the need to diversify and remain profitable by saying "India is short of crude: we currently import 80% of our crude oil, and accordingly the government has placed a lot of emphasis on increasing crude production. That is how the NELP policy came into being. When India has such a demand for crude, it makes sense for companies like BPCL to enter the upstream sector. We took a risk, but we succeeded. As an organization, we have dreamt to grow and make more profit and diversify our portfolio and activities, and I am sure that BPCL now has a good future ahead."
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