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Indian Oil shares rise on plans to invest US$11 billion to boost capacity, exports

(AP)
Filed on September 25, 2007

NEW DELHI - Shares of Indian Oil Corp., the country’s largest oil refining company, rose as much as 6.1 percent Tuesday a day after its chairman said the company would invest 432.5 billion rupees (US$10.8 billion, Š7.6 billion) over the next five years to expand capacity and retain its lead in the domestic market.

Chairman Sarthak Behuria told a shareholders’ meeting Monday the company _ India’s largest by revenue in 2006 _ wants to increase annual refining capacity by more than 20 percent to 80 million tons (632 million barrels) by 2012.

The strategy was to play an active role in India’s bid to emerge as an export-oriented refining hub,’ he said.

Indian Oil share prices dropped back to 423 rupees by afternoon in India, up 4.6 percent from Monday.

India produces only a quarter of the petroleum fuel it consumes annually and the rest of the demand is mostly met by importing crude and refining it in the country. The practice has helped the country build a large number of refineries, some of which are also being used to export petroleum products.

Exports also help Indian companies reduce their dependence on the Indian market, where prices of products like gasoline and diesel are set by the government.

State-run oil companies like Indian Oil have seen their profits erode in recent years with the government not raising the prices proportionately to the upward moving crude prices in the global market.

India’s state-run companies, however, export much less than their rivals in the private sector, such as the Reliance Industries Ltd.

Reliance is building a new refinery in Jamnagar, an industrial hub in western India, that would be the world’s biggest and would be used mostly to process crude for exports.

Indian Oil’s chairman, Behuria, said a part of the investment over the next five years will go into increasing the share of less expensive high-sulphur crude oils processed at its refineries to 75 percent from 44 percent, according to his speech posted on the company’s Web site. That would further increase the company’s profit margins on exports by lowering its raw material costs.

The company also plans to source more liquefied natural gas, build gas infrastructure, expand city gas distribution to more cities, Behuria said.


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