Indian Oil Corporation Ltd (IOC) is trying to assess the repercussions of Iran’s investment in their subsidiary Chennai Petroleum Corporation Ltd (CPCL) expansion projects worth of Rs. 35,700 crores.
CPCL’s plan of refinery expansion
Chennai Petroleum Corporation Ltd (CPCL) is a group company of IOC. CPCL refineries produce LPG, petrol, kerosene, aviation turbine fuel (ATF), diesel, naphtha, bitumen, lube defective shares, paraffin wax, fuel oil, hexane, and petrochemical feedstocks. IOC holds 51.89% stake in CPCL while National Iranian Oil Company (NIOC) has 15.40%.
CPCL has two refineries. The first one is the Manali refinery which has a capacity of 10.5 million ton per annum. The second refinery with a capacity of 1 million ton per annum is located in Nagapattinam. Both the refineries have a consolidated refining capacity of 11.5 million ton per annum. However, IOC is planning to pull down from the Nagapattinam refinery and build a new 9 million tones unit over the next 5-6 years.
Effects of US sanction against Iran on India
In May 2018, US President reinstated two sets of sanctions on Iran which were lifted 2 years back. The first sanction included Iran’s purchase of U.S. currency, its trade in gold and other precious metals and sales to Iran of auto parts, commercial passenger aircraft, and related parts and services. This sanction came into effect on 7th August 2018. The second set of sanctions came back into force on 4th November 2018 restricting sales of oil and petrochemical products from Iran.
These sanctions impacted on the global economy as oil is a global commodity and Iran is the sixth largest oil producer in the world. Eight countries were granted waivers from US sanctions in November 2018 for a period of six months to enable them to reduce their import of Iranian crude to zero. These countries were India, China, Japan, South Korea, Turkey, Taiwan, Italy and Greece. In 2017-18, India imported about 22 million tons of crude oil from Iran. In 2018-19, it planned to increase imports to about 30 million tons. Terms of the waiver forced the hand of the Indian Oil Companies and they had to reduce their imports significantly. Imports worth 1.25 million ton per month were the allowed limit up to March’19.
In April 2019, in order to bring Iran’s oil exports to zero US President decided not to renew waivers when they expire in early May.
NIOC’s invested in CPCL in July 2003. Therefore, that will not draw any impact of US sanctions. NIOC is eager to invest in the current expansion of CPCL’s Nagapattinam refinery. However, this investment of NIOC might impact due to the United State’s reimposed sanction on Iran. Currently, IOC is evaluating the impact in order to take further decisions.
The share price of IOC on 20th May ’19, when they were trying to assess the repercussions of Iran’s investment in CPCL grew 5.17% to Rs.157.45 and share price CPCL declined 0.09% to Rs.213.2. On 4th June ’19, the stock movement in IOC was +0.5% at Rs.170 and CPCL rose 1.07% to Rs.225.65.