Date:18/09/2005 URL: http://www.thehindubusinessline.com/2005/09/18/stories/2005091801840200.htm

Back HPCL betting on better gross refining margins to cut losses

Pratim Ranjan Bose

The financial health of the oil marketing companies is now solely dependent on maximising the gross refining margin by way of using the right mix of cheaper crude.

Kolkata , Sept. 17

HINDUSTAN Petroleum Corporation Ltd (HPCL) is expecting an improvement in gross refining margin in the second quarter. The company had suffered from a relatively low gross refining margin compared to other oil marketing PSUs as it had to refine higher volumes of costlier low sulphur crude to meet the Euro-III and Euro-II auto fuel specifications in the first quarter.

At a time when oil marketing companies are losing heavily on retail sales of petroleum products, the refining margin has become the only means to reduce losses.

In other words, the financial health of the oil marketing companies is now solely dependent on maximising the gross refining margin by way of using the right mix of cheaper crude.

Sources in HPCL said that the company had to take a beating in the gross refining margin as the Mumbai refinery was shut down for maintenance in the first quarter and the Vizag refinery had to bear the entire burden of refining the cleaner fuel.

Though Vizag continued refining cleaner fuel for the first one-and-a-half months of the second quarter, till it went in for a maintenance shutdown, the company has been successful in improving the mix of cheaper high sulphur crude from 35 to 40 per cent in the second quarter. The change in crude mix has led to substantial savings for the refinery.

HPCL's gross refining margin received a further shot in the arm when Mumbai resumed operations in this quarter. The company has appointed a consultant to prepare an investment roadmap to gear its refining process to the use of cheaper crude.