RIL's refinery shutdown to cause Rs1,900 crore revenue loss

The Jamnagar oil refinery of Reliance Industries (RIL) was partly damaged in a major fire, which broke out yesterday morning. One of the two vacuum gas oil (VGO) hydrotreaters is learnt to have been considerably damaged in the incident and has been shut down. The other VGO unit is functioning normally. A faulty valve reportedly caused the accident and there are no human casualties except for an RIL employee who was injured.

The accident would affect production to the extent of 50 per cent at the third-largest oil refinery in the world with a processing capacity of 6.6-lakh barrels per day. The damaged VGO unit would be out of action for at least 15 days, reducing processing volume by close to 5-million barrels. Operating at nearly 95 per cent of installed capacity, the refinery had processed 15.7-million tonnes of crude oil during the period April-September 2006.

The disruption would lead to a revenue loss of around Rs1,900 crore for the current quarter and a profit impact of around Rs125 crore at the PBIT level, at current crude oil prices and refining margins. However since the company has a comprehensive insurance policy, loss of profit can be claimed from insurers. Analysts do not expect any impact on results for the full year 2006-07, as the company can make up for lost production to some extent in the last quarter.

RIL's refinery accounts for more than 25 per cent of the total LPG production in the country and the partial shutdown has raised concerns about shortages. PSU oil marketing companies are gearing up for imports in the short term to ensure supplies. Domestic supplies of other petroleum fuels like petrol and diesel would not be impacted much as RIL has been exporting most of its production because of unremunerative domestic retail prices.

Estimates of likely damage to the plant put out by insurance companies and industry analysts vary from Rs300 crore to Rs1,200 crore. RIL has insured its various domestic assets for Rs80,000 crore, of which the Jamnagar complex alone has been insured for Rs50,000 crore. The four major PSU general insurance companies and private sector insurers Bajaj Alllianz and ICICI Lombard have covered the RIL assets jointly. Their losses would be limited as the policy has been re-insured with international re-insurers.

RIL's subsidiary Reliance Petroleum is setting up another oil refinery and petrochemicals complex next to the existing refinery, at a cost of Rs27,000 crore. When the new refinery is completed, Jamnagar would have the single largest refining capacity at a single location anywhere in the world.