State-run Hindustan Petroleum Corporation Ltd (HPCL) is entering a new phase, with Oil and Natural Gas Corporation (ONGC) expected to take over the firm by March-end. In an interview, HPCL Chairman and Managing Director M K Surana tells Shine Jacob & Jyoti Mukul about the recent spurt in global crude oil prices, acquisition of the Mangalore Refinery and Petrochemicals Ltd (MRPL) and the company’s expansion plans. Edited excerpts:
Crude oil prices have been volatile. How do you think they would pan out in the coming months?
In the past 7-10 days, crude oil has moved drastically. In the past two weeks, it has moved from $57 to $65 and then again to $63. There are some triggers like tension in Saudi Arabia, Iraq, the crisis in Venezuela, the perception about inflationary pressure in the US, and the pending Organization of the Petroleum Exporting Countries meeting in November. The level of compliance on OPEC cuts has been good.
Based on that, I feel it is still not an indication of any structural change in the oil market. It is more a reaction to the geopolitical situation. Going forward, it should remain in the region of $57-65 a barrel. If it crosses $65, we need to see whether there is a structural change happening or not.
There are talks of MRPL-HPCL merger after ONGC buys the government’s stake in HPCL. If the merger happens, how will HPCL benefit?
HPCL sells more than it produces. The demand is growing and I am already short of refining capacity. Also, MRPL is producing petroleum products but is not into marketing in a big way. First, we have to bridge the gap between production and marketing. The second part is that each refinery has certain secondary processing facilities.
On the crude procurement front also, it will be an advantage, as we will have a large basket. While we are not into petrochemicals, we have set up a department for the segment. If ONGC Mangalore Petrochemicals is also a part, it will bring the petrochemicals portfolio with it. With that, the Rajasthan refinery and planned Kakinada complex, we will have a presence in the north and the south in petrochemicals.
There were reports that there can be a swap of MRPL shares. Is that possible?
Logically, it makes sense that if the ONGC-HPCL integration happens, MRPL gets merged with HPCL too. However, we have not taken any proposal to our boards or started any discussion on that.
It has been a year since OMCs took up digitisation. How has the progress been?
About 96 per cent of our outlets have at least one form of cashless payment option. We have been giving 0.75 per cent discount on digital payments. We had also been absorbing merchant discount charges for card payments. Our digital payments, which stood at 9.5 per cent before the demonetisation and around 23 per cent at its peak, are at 18 per cent.
As far as merchant discount rates and incentives are concerned, we spent Rs 131 crore in the past six months. The interesting fact is that people who migrated to digital continued to use it. But in rural India, sometimes, connectivity issues are there. We conducted various workshops to motivate people and we are quite hopeful of increasing this number further. This is the dealer part of it.
How would the retail market pan out with the entry of foreign players?
Already, players like Reliance and Essar are there. Whoever comes will take a share of the PSUs. Right now, private players have a share of only 6 per cent. Their share has not grown at the same pace during the second quarter of FY18 as it did in the first. We have to see how the pie is growing.
In the first six months, we have also seen an 8 per cent growth in petrol, 3.8 per cent in diesel, and 10.6 per cent in LPG compared to last year. This is above or at par with the industry average, which is 7.9 per cent, 3.8 per cent, and 10.1 per cent, respectively, and above private sector growth. All products, in which HPCL deals, put together, PSUs grew by 2.8 per cent, the industry, including private players, by 3.7 per cent, and HPCL by 4.1 per cent. We will ensure that our market share continues to grow.
What are your refinery expansion plans and their market for expanded production capacity?
The demand for overall petroleum products is set to grow at around 4-5 per cent. To meet that requirement, we need refineries. In addition to this, why should we restrict our consumption to only in India? India has the potential to develop as a refining country. In terms of petrochemicals, demand is growing and our per capita consumption is very low so there is a potential demand. Therefore, all refineries that are coming up have petrochemical projects added to them.
We are planning overall investment of about Rs 60,000 crore, including Rs 35,000 crore in marketing infrastructure.