Also read: Essar Energy reiterates outlook, shares rise
Below is the transcript of the interview.
Q: I want to ask you on diesel prices in 2014 and your diesel business in 2014, there is a good chance that in 2014 it will be fully deregulated, what kind of addition do you see from diesel to your topline and bottomline in 2014?
A: You are right that in 2014, there is a real chance of diesel getting deregulated considering that rupee is now more or less stabilised and we believe crude prices are going to slightly soften from here.
We have 1,400 retail outlets across the country and have started working on expanding the network. Once diesel deregulation happens, we can certainly see a major boost to Essar Oil bottomline, if not on the bottomline.
Q: You all had indicated that you see the possibility of your gross refining margins (GRMs) improving by USD 1.5 within next three years, how much of it can come through in the next year itself?
A: Once we completed our plants' expansion and optimization, we structurally upgraded Essar Oil margins from USD 3-4 to USD 7-8. This year, we started an optima plus scheme to try to increase our GRMs by about USD 1.5 in next three years. We have already started and the progress is satisfactory. In the next fiscal, you should see a substantial part of it coming through.
Q: We will soon have that New Exploration Licensing Policy (NELP) auction and a lot of people believe that the recent gas price confusion was cleared to attract good interest for NELP. What is your own call and would you be participating in some of these auctions?
A: Essar Oil is definitely committed to India's oil and gas sector but it is too premature to say that whether we are going to participate. We will definitely look at the auctions available in the forthcoming NELP round and take an appropriate decision in due course.
Q: Post your earnings you had indicated that you are awaiting the gas price confirmation for the coal bed methane (CBM), has that come through? If yes, at what pricing?
A: It is still under the government's consideration and a formal notification is yet to come but the decision is there. All of us are aware that the government has taken this very bold step, which is going to unleash a new era of gas exploration and production in India.
Q: What is the latest on the big sales tax issue with the state government that you had? I believe the Supreme Court (SC) had also overruled your application, what is your next step?
A: Considering all refineries in the country had got this incentive benefit and as refineries require huge investment and as the new refinery in Rajasthan was going to get almost Rs 55,000 crore of incentive in next 15 years, we had requested the SC to review whether a feasibility package could be considered for Essar Oil. However, SC did not consider it and we are paying the sales tax dues as per the installments granted by the SC. That is all.
Q: You also have Reserve Bank of India (RBI) approvals in place which can allow you to raise further overseas debt and perhaps refinance, which will help in reducing your interest cost, could you tell us the headroom which you have available and are you all planning to go ahead and raise more overseas debt?
A: We have done almost USD 900 million of conversion or pause in terms of dollarization. We had permission for USD 2.27 billion from RBI. We have already made substantial progress and I think that 2014 should see a lot of progress on that front.
Q: Can you give us some numbers for next year, any kind of projections in terms of topline and bottomline?
A: In terms of topline, next year is the year where we will be taking our annual turnaround of the refinery. So we expect the refinery, barring a period of about 25-30 days, to run at more than 100 percent capacity utilisation. We will be as I mentioned completing a lot of part of this optima plus so our refining margins should increase further.
As far as refining margin per se is concerned, I don't think we can make any definitive assessment of that but IEA has upgraded the demand forecast by about 1.4 million barrels per day for 2014.
The growth in US is picking up, a lot of crude from Canada and central America should reach the US gulf cost because of the starting of a pipeline in January, which will result in firming up of West Texas Intermediaries (WTI). Going forward, all I can say is that the refining margins, which have recently improved should remain healthy.
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