State-owned oil refiner HPCL plans to add up to 5 million tonnes of petrochemical (mtpetchem) production capacity over the next five years. This would involve a significant portion of HPCL's planned Rs.61,000-crore capital expenditure for that period, CMD M K Surana said after the company's annual shareholder meeting. HPCL's proposed refinery in Barmer, Rajasthan, will be the first integrated refinery in the country, Surana informed, with both an oil refining and a 2 mtpetchem production capacity built into the design.

Besides this, the company is in talks with the Andhra Pradesh government to set up a 1.3 mtpetchem plant at Kakinada along with GAIL. Additionally, a licensor has been selected for the company's existing refinery in Bhatinda, Punjab, to set up petchem capacity of 1.3 mt in the next couple of years.

HPCL has also set up a petchem marketing department to find the best prices for its products, Surana added.

Peer plans

The company's investments in the petchem industry are in line with the plans of the other two state-owned oil refiners — Indian Oil Corporation and BPCL. BPCL has said it intends to invest Rs. 45,000 crore in petchem capacity expansion over five years while its larger counterpart Indian Oil Corporation plans to invest Rs 32,000 crore. The investment push comes as refiners expect the demand for plastics, adhesives and synthetic fibres to multiply in the coming years even as the future of their traditional revenue streams from refined fuels appears shaky amidst the government's push for e-vehicles.

Also, petrochemicals are a good way for such companies to "derisk in the motor fuel segment," explained Surana. On ONGC's pending acquisition of the government's 51.1 per cent stake in HPCL, Surana said that the Centre has formed an advisory panel which will determine the per share transaction value of the deal. However, HPCL will continue to be a separate entity after the acquisition, he said. While he did not give a completion date for the proposed new refinery in Barmer, Surana said that the revised plans for the long-pending plant have a better technical configuration and would be able to process a wider variety of crude oils than before.

Earlier this year, HPCL signed revised terms with the Rajasthan government — a joint venture partner in the refinery — losing many of the tax breaks that had initially been promised. "However, the internal rate of returns remains about the same even under the new terms," Surana said. "This is because the earlier agreement was drafted when international benchmark crude oil prices were at twice where they are now."