Speaking to CNBC-TV18, S Varadrajan, chairman and managing director, BPCL says the company is likely to post Gross Refining Margins in the range of USD 4.5-5.5 per barrel.
Also read: Govt has to shift part of oil bill to next year: Fitch
But what aided good numbers was the 95 percent under recovery compensation paid by the government and upstream companies.
"Fortunately we got upstream compensation of almost around 53 percent and also had the government step-in with a contribution of almost 42 percent. So, we still absorbed around 5 percent of under recovery which translates to 760 crore," he adds.
Varadrajan is hopeful of a 100 percent under-recovery compensation in the days to come too.
Below is the edited transcript of Varadrajan's interview to CNBC-TV18.
Q: Could you talk about the operational performance, in Q2 your GRMs at USD 4.6 per bbl rising quarter-on-quarter and came in better-than-expected. Can you give us an indication of whether these GRMs are sustainable in the second half of the year and what the trend could be?
A: Gross refinery margins (GRM) is a number which is difficult to predict granted that over the past five-six quarters, we have been having a consistent level as far as the GRMs are concerned, somewhere in the region of USD 4.5 to 5.5 per bbl. For half year also we have reported a similar trend. However, going forward the spreads, if they are where they are today and if it more or less sustains at the same levels over the next two quarters, then we would see margins of similar nature going forward at this point in time.
Q: Besides the margins where you stood out was primarily you are a profit making company whereas your peers have not been able to do that given the subsidy burden or the under recovery burden. You do not slip up from that, you do not have those fears at all?
A: We were fortunate that we had some excellent numbers for the quarter end, for the half year. We did show a profit around Rs 1,081 crore in the first half year but also we had gross under-recovery of almost around 15,000 crore for BPCL in the first half.
Fortunately we got upstream compensation of almost around 53 percent and we also had the government step-in with a contribution of almost 42 persent. So, we still absorbed around 5 percent of under recovery which translates to 760 crore. Inspite of that absorption, we still manage to show bottomline numbers which are positive and we need to wait and see at the end of the year how the entire compensation is addressed and what would be the number which would emanate there.
Q: There are no threats that you may slip in from a profit to a loss making company like some of your peers because of circumstances beyond your control because of fiscal reasons?
A: I think the performance has been fairly steady on the refining front and market sales have been fairly steady at the same level. Costs have been under control, inventories have been kept under check. For the last couple of years with high levels of under recoveries for the industry as a whole, we have always managed to get almost 100 percent compensation at the end of the year. We are hoping that with 100 percent compensation in the current year we should turn in robust numbers.
Q: You said that your refining business is progressing smoothly; your refinery throughput has also increased this time to 6 million metric tonne (MMT), which was a growth of around 7-8 percent on a quarter on quarter basis. How much of an incremental growth are you expecting in refinery throughput in the next couple of quarters?
A: As far as refinery throughput is concerned we would be close to 23-23.5 million tonne which is a steady state at this point in time. We do not see any major changes going forward other than the routine shutdowns which would happen in different units at different points in time.
The throughput would be fairly steady at that level. However, we are going through a major expansion in Cochin refinery, where we are adding 6 million tonne of capacity. That would get completed by the Q1 of 2016 and then one would see a significant increase in the throughput adding on another 6-6.5 million tonne at that point in time.
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