January 28, 2018
Ashok, who was appointed Chairman and Managing Director of Ratnagiri Refinery and Petrochemicals Ltd (RRPL) in November last year, had an outstanding record during his three-year stint at Indian Oil Corporation Ltd (IOCL) in the same capacity. But the challenge of building a new, state-of-the-art refinery cum petrochemical complex from scratch - with a capacity of 60 million metric tonne per annum (MMTPA), making it one of the largest in the world - is of a different kind. RRPL is a new joint venture the three state oil marketing companies - IOCL, Hindustan Petroleum (HPCL) and Bharat Petroleum (BPCL), owning 50 per cent, 25 per cent and 25 per cent respectively - decided upon in mid-2017.
Under Ashok's charge, IOCL's net profit surged from `5,273 crore in 2014/15 to `10,399 crore the following year. In 2016/17, the company went on to record a further 70 per cent rise in net profit to `19,106.40 crore, and was adjudged India's most profitable public sector enterprise, even surpassing the usual winner, Oil and Natural Gas Commission (ONGC). No doubt the plunge in crude prices - from $108 a barrel, when Ashok took charge in July 2014, to $46.17 a barrel in June 2017 when he left office, contributed, as did the government's steps during this period to dismantle the oil subsidy regime. But Ashok's adroit use of the opportunity also made a difference.
"I saw it as a chance to free up cash flows," he says. "In earlier years, the government of the day kept up the subsidy mechanism since global prices of crude and its products were high. This led to under-recoveries. The government's compensation to oil marketing companies for under-recoveries was often delayed, and sometimes did not come at all." This forced IOCL to seek debt to cover its operational expenses, which stood at `86,263 crore in 2014/15, but by 2016/17 had been brought down to `54,820 crore. This, along with falling interest rates, brought IOCL's annual interest payments down from `5,084 crore to around `2,000 crore in the same three-year period. The debt-equity ratio has improved to 0.55 from 1.31 in 2014/15.
"The improved cash position provided financial flexibility which allowed me to clear up our oil purchase processes," says Ashok. "Purchases have been made swifter. We close deals within 36 hours, unlike before, when they would take weeks." Top IOCL officials revealed that after Ashok moved on, the process has been speeded up even further and now barely takes nine to 10 hours. "The glut in oil prices has made spot market purchases advantageous, but to make the most of them, decisions have to be taken quickly," Ashok adds.
Another major IOCL's achievement during Ashok's tenure was the commissioning of the new 11 MMTPA refinery-cum-petrochemical complex at Paradip, Orissa. This was a much-delayed project which had been plodding along for over two decades and was considered jinxed by the industry. Sanjiv Singh, who has since succeeded Ashok at IOCL, was then Director (Refineries), and the two worked together to iron out the last bottlenecks and get the plant going. They expanded and upgraded a number of other refineries as well. Out of 23 refineries in India, IOCL runs 11 with total capacity of 80.7 MMTPA.
It is Ashok's responsibility not only to build RRPL, but also to equip it to face the next decade. He will have to look for ways to keep purchase costs down, where his knowledge of inventory management, acquired at IOCL, will be a big asset. He will also have to cope with a changing market, given the government's expressed intention of encouraging electric vehicles so aggressively that by 2030 there are only these vehicles on streets. If this market shrinks or withers, what will happen to refineries and oil marketers?
"I doubt the near future will see a scenario where neither petrol nor diesel is required as vehicular fuel," says Ashok. He points out that a purely electric future for road transport is based on numerous assumptions - that the cost of storage batteries will continue to fall, that their capacity will dramatically improve and that there is enough lithium available to manufacture the vast number of batteries that will be needed. Without any one of these, electric vehicles are unlikely to be viable on a large scale. "Electricity is a good alternative for vehicles, but we have to see the time frame in which the infrastructure for it can be built," he says. He is convinced it will take a lot more time than envisaged. "In the short-term future, the country's appetite for fuel can only increase and so will consumption of crude oil," he adds.