Thursday, July 15, 2010

Indian Oil to Invest in Africa in $1 Billion Push

Indian Oil Corp., the country's second-biggest refiner, plans to acquire oilfields in Africa as part of a $1 billion overseas investment plan, its chairman said.

"Africa is top of our list to buy assets because it is near India and has good quality crude," Brij Mohan Bansal said in an interview at his office in New Delhi today. "We are planning retail outlets in Indonesia."

State-run Indian Oil's renewed plans to expand overseas came after the government freed gasoline prices from its control last month and said it will eventually allow refiners to set diesel rates, helping to increase cash flow. The refiner has set aside $1 billion for acquisitions overseas, Bansal reiterated.

"Africa offers many grades of crude and gives refiners security of supplies to have fields there," said Vinay Nair, a Mumbai-based analyst with Khandwala Securities Ltd. "They will however still need financial support from the government to help make profits."

The refiner delayed crude-processing and pipeline projects overseas, including Nigeria and Turkey, because of reduced cash flow after selling fuels below cost, Bansal said in July last year. Indian Oil and Turkish builder Calik Holding had planned to spend $4.9 billion to build a 300,000 barrel-a-day refinery in Ceyhan on the Mediterranean coast.

The companies, with Eni SpA, Europe's fourth-largest oil company, had also planned to spend $2 billion on a pipeline from Samsun on Turkey's Black Sea coast to Ceyhan to transport as much as 1.5 million metric tons of Central Asian crude oil a day.

The shares have increased 23 percent in Mumbai trading this year compared with the 3 percent gain in the benchmark Sensitive Index of the Bombay Stock Exchange. The stock declined 3.8 percent to 374.45 rupees today.

Indian Oil, which owns stakes in ventures in Africa and the Middle East, had plans to invest in refinery and pipeline projects in Nigeria, former company spokesman M. Kali Krishna said in October 2006. The Economic Times reported then that the company may invest $3.5 billion to build a 300,000 barrel-a-day crude processing plant in the African nation.

The refiner holds shares in exploration ventures in Iran, Yemen, Gabon, Nigeria and Venezuela. The projects are yet to produce oil.

India's crude imports increased 20 percent to 153.2 million tons in the year ended March from a year earlier, according to the oil ministry's data. The nation's energy use may more than double by 2030 to the equivalent of 833 million tons of oil from 2007, the International Energy Agency said.

"Deregulating fuel prices helps us increase cash flows and profitability," Bansal, 59, said. The refiner currently has debt of 470 billion rupees, he added.

Indian Oil plans to revive a 200 billion-rupee ($4.3 billion) chemical project in the eastern state of Orissa and build nuclear, wind and solar power plants as cash flow increases, Bansal said.

"We will bring the petrochemical project out of the cupboard again since there is more clarity about our finances now," he said. "We want to become an integrated energy player and will spend on renewables."

The refiner plans to build a 1,400-megawatt nuclear power plant in the northwestern state of Rajasthan at a cost of 120 billion rupees in partnership with Nuclear Power Corp. of India. Indian Oil would own 26 percent in the venture and the plant may start producing electricity in 2015, said Bansal, who plans to seek the approval of his company's board in two months.

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