Interview With L K Gupta, MD & CEO, Essar Oil

• What is your view on value creation for stakeholders?

Essar Oil believes in creating value for all its stakeholders through its Sustainability Policy, which is integrated with its economic, social and environmental objectives.

• Do you think that Indian companies have succeeded in creating value in the true sense of the term?

It would be unfair to paint all companies with a single brush. A large number of companies have created substantial value for their stakeholders while some others may not have been so successful.

• What are the challenges faced by you and the strategies adopted to overcome those? Which of these have helped you in emerging among the top value creating companies today?

As far as Essar Oil is concerned, one of the biggest challenge the company faces is a lack of level playing field. Unlike PSUs, Essar Oil is not eligible for any subsidy for retailing diesel at below market price, resulting in under-utilisation of our 1400 odd outlets spread across the nation. However, with complete deregulation of petrol prices and the continuation of regular increase in diesel retail prices, we are confident that upon reaching price parity, our retail network will provide substantial value to our stakeholders.

During FY13, our sales tax issue was concluded with the Supreme Court orders and we are now making quarterly payments towards the ST obligation in conformity to this order. We have a line of credit from lenders towards meeting any shortfall in this quarterly commitment.

The completion of the Vadinar refinery expansion and optimisation projects brings the major capital expenditure cycle in our refining business to a successful conclusion. The focus has now moved to ensuring that all our assets operate in line with the expectations, and we deliver the promised cash flows and profitability, which will be utilised to de-leverage our balance sheet and maximise shareholders’ value.

On the financial side, we are working towards reducing our gearing. We have the RBI’s approval to raise up to USD 2.3 billion in ECBs, which we will use to dollarize our rupee loan. This will bring down our interest cost by USD 150-200 million annually, which we will use to further reduce our debt. Essar Oil is out of the CDR scheme and has converted USD 481 million of rupee debt to foreign debt. We aim to close the balance within this fiscal.

• What is your vision for the Indian economy over the next five years?

Currently, the Indian economy is facing challenges on both domestic and international fronts. Domestically, the twin deficits, high current account deficit (CAD) and fiscal deficit, coupled with falling growth and stubborn inflation have been major challenges. Internationally, the US appears to be rebounding, while Europe is still under the recessionary grip. India can still bounce back to growth of more than 8% in the coming years, provided the government takes strong measures in improving the investment climate of the country.

• Where do you see your company fitting in this vision? And where do you see the company in the next five years?

We are very excited about the future and see a continued demand for petro products. Currently, India has a net refining surplus of less than 20 MTPA, which is likely to be absorbed over the next 2-3 years given that the overall petroleum product demand is rising at 5-7% per annum. Future expansion, unless they are brownfield, are going to be extremely challenging given the issues related to land acquisition etc.

If the government keeps up the periodic hike in diesel retail prices, the retail sector will be opened up to players like us in the future and we are confident of garnering a good market share and provide value for money to our customers.

Over the next five years, we see ourselves continuing to meet India’s growing energy demands and financially much stronger than what we currently are.