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View from the top: Looking through the lenses of Indian oil CEOs



Essar Oil eyes bigger slice of the pie in retail sector

By Sambit Mohanty


It has been slightly over a month since Essar Oil closed its $12.9 billion takeover deal by Russia's Rosneft and a consortium led by Trafigura, but the new CEO of India's second-biggest private refiner has already carved out a clear vision to steer the company on a path of sustained growth.


B. AnandB. Anand, who became Essar Oil's CEO following the takeover, said that having a world-class refining asset, combined with Rosneft's experience in running multi-location refineries as well as Trafigura's strong global oil trading and risk management capability, would help it bolster its presence in one of Asia's fastest growing oil demand centers.


"Our number one priority is asset optimization, something which will give us a faster return," Anand, who was the chief financial officer at Trafigura's Indian operations before taking over as Essar Oil's CEO, told S&P Global Platts in an interview.


"Then we will look at building our retail network. And we will look at opportunities to diversify into petrochemicals," he added.


In a deal that closed 10 months after the initial agreement, Rosneft acquired a 49.13% stake, while the Trafigura-led consortium acquired a similar stake. The remaining 1.74% stake will continue to be held by retail shareholders.


The deal included Essar's 20 million mt/year Vadinar refinery with a complexity index of 11.8 as well as its network of over 3,500 retail outlets.


The purchase also included the Vadinar port, with a capacity of 58 million mt, and the 1,010 MW Vadinar power plant that supplies power and steam to the refinery.


The deal is Russia's single largest foreign investment. It is also the single largest foreign direct investment in India.


"We can do the asset optimization with very little amount of capital expenditure. The refinery is a great asset on the ground. We have to make it more effective," Anand said.


The asset optimization plan would include efforts to make CDUs and FCCs more efficient so that it can use heavier crudes, he said. In addition, Essar would also selectively look at opportunities to augment its existing facilities at its port and the power plant.



THE BIG RETAIL PUSH

India currently has about 57,400 retail fuel outlets spread across the country, out of which the three state-owned companies -- Indian Oil Corp., Hindustan Petroleum Corp. Ltd. and Bharat Petroleum Corp. Ltd. -- account for about 53,500, controlling more than 93% of the market.


Private refiners Reliance India Ltd. and Essar Oil had ventured into the retail space in India Jan-Aug oil products demand2002, but were forced to close their fuel stations after the government decided to control prices after 2005. Following the deregulation of diesel in October 2014, Essar and RIL re-opened some of their outlets, but the progress has been slow.


"We want to grow in the retail space. India is still under-penetrated when it comes to fuel stations," Anand said. "We see that as a great growth opportunity despite the fact that it is dominated by state-run entities.


"Our initial plan is to raise fuel stations to 6,000 in the near to medium term. The Indian growth story so far has revolved around the metros or the big cities. But the government is taking a lot of initiative to develop smarter cities, and energy will become core to that. So how one reaches closer to consumers in those areas will be quite important for us," Anand said.


He said that due to the promising demand outlook for aviation fuel amid the government's push to build airports in second-tier cities, Essar Oil would look at ways to boost production of jet fuel.


"We will look at jet fuel with a lot of excitement. Jet fuel is at an inflection point for growth. We are in discussions to build the right kind of supplies to cater to that growth. It will be a part of our direct sales concept," Anand said.


Commenting on the government's clean fuel push, Anand said that Essar was keen to play a much bigger role in supplying LPG to the domestic market.


"We have to think it through on how we retail LPG. We can look at how to augment our own production. Also, we can look to import, and that's where our association with our new shareholders come in handy. We can bring in LPG from our other networks," he said.



PETROCHEMICAL DREAMS

Essar Oil was also looking at expanding its presence in the petrochemicals sector, Anand said, adding that it had sufficient land in hand, should the company decide to expand either its refinery or its presence in petrochemicals.


"For the next phase of growth, we will look at petrochemicals as diversification of energy risk and also contemplate adding refinery capacity should there be a need," Anand said. "Petrochemicals make great sense if you are a producer of the feedstock."


Commenting on Essar's crude diversification strategy, Anand said that with Rosneft as a majority partner, Essar's ability to lift equity crudes from countries such as Venezuela would increase.


"We would love to pick the heavy and ultra-heavy crudes. The combination with Rosneft would give us access to those crudes, which we would not have got otherwise," Anand said, adding that Essar would also keep its options open on bringing in US crudes as long as the economics work.


Trafigura's trading advantage would also help the company export products in the future, he said.


"The more your molecules travel, the more equity you get. Using a company like Trafigura, which has not just the ability for inter-mediation but also the ability to store and reach out to different markets, gives us that unique strength," he added.


Referring to some of the government's initiatives in the past three years, Anand said that some of the reforms in the oil and gas sector had made it easier for the company to make investment decisions in the coming years.


"The reason we came in to invest $13 billion is because of the efforts and the direction of reforms brought in by the government. It has been very encouraging to see the reforms," he said. "We love the government's decision on the daily revision of retail oil prices. It brings transparency and helps to hand over significant value into the hands of the consumer."


But the government needed to bring all oil products under the goods and services tax, he added.


In July, India embraced a unified tax structure across a wide range of goods and services while it kept crude, natural gas and some oil products out of GST's purview. Government officials have said that New Delhi would look into the possibility of imposing GST on the energy sector at a later date.


S&P Global Platts India CEO Series: Mukesh Kumar Surana, HPCL | Sudhir Mathur, Cairn | Sashi Mukundan, BP | Dinesh K. Sarraf, ONGC | B. Anand, Essar Oil | Sanjiv Singh, IOC


Interviews in this series were conducted and first published by S&P Global Platts in September 2017, except for the IOC interview which was conducted and published in November 2017.







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