Essar Oil: Growing Margins
The oil and gas sector is a critical component of the Indian economy that accounts for 15 per cent of its gross domestic product (GDP). India still imports almost 80 per cent of crude oil for refining. However, the government of India has taken some positive steps to accelerate the growth of the sector and attract investments — and the difference is visible in the overall growth of the industry. The industry growth coupled with the change in Essar Oil (EOL) management in August 2017 have presented significant opportunities to the company.
Says B. Anand, CEO, EOL, “The new set of management both from Rosneft and Trafigura has come together, drawing diverse experience from global markets. The ethos of the shareholders is not only high on growth, financial performance and operational excellence but is also driven towards governance, transparency and safety, matching global benchmarks.”
The oil industry, however, has its challenges. Geo-political risks and fluctuating markets are the key challenges facing the oil manufacturing companies. EOL’s continued efforts have been towards alleviating these with high-quality risk management processes and long-term relationships with key stakeholders, OMCs and suppliers. Additionally, EOL, along with other oil companies, is engaging in discussions with the regulatory bodies for changing local assembly tax structures and bringing products under GST.
According to Anand, “Our consistent performance in 2017 underscores our operational efficiency, versatility of our Vadinar refinery to process a diverse crude basket, and expansion of our retail network, all of which have helped us scale up the business despite fiscal challenges.”
EOL’s Vadinar refinery in Gujarat has leveraged its operational expertise to the maximum. The company is now focusing on domestic markets, keeping in mind the increasing domestic demand for energy. As the country, one of the fastest growing economies in the world, continues on its growth trajectory, there is an increasing need to bridge the demand-supply gap in the energy sector.
EOL is advantageously positioned to capitalise on this opportunity. Its Vadinar refinery — completed with an investment of approximately Rs 24,000 crore — has an expanded 20 million metric tonnes per annum facility, benchmarked with a global high complex refining capability, that is fully operational. It has enabled EOL to demonstrate an excellent operating performance with a very strong focus on safety and post record gross refining margins (GRM). In the past, Essar Oil doubled its GRM by producing higher margin light and middle distillates and processing a higher percentage of lower cost heavy and ultra–heavy crude oil. By doing so, it has showcased the true potential of its assets.
The year 2017 was a memorable year for Essar Oil; it displayed strong operational and people performance. Its management change and improved financial performance helped the company emerge as a stronger energy player.
The FY2018-19 looks exciting for EOL as it is determined to continue to expand with a keen focus on delivering excellence with its refinery asset. According to Anand, “We will grow our retail footprint, engage with our customers with exciting offerings, and establish a solid brand.”
