Nayara Energy: Optimizing India’s Energy Basket

In August 2017 NAYARA Energy (a new era) was born out of Essar Oil. It operates the nation’s second largest, 20 MMTPA Vadinar oil refinery capable of processing some of the toughest crudes and produces high quality Euro IV and Euro V grade products. Nayara Energy’s state-of-the-art refinery has achieved a high complexity index of 11.8.

Before Nayara Energy – Essar Oil

Essar group (EGFL) which is one of India’s leading conglomerates, started as a construction company in 1969 and later diversified into Oil and Gas sector leading to the formation of Essar Oil in 1994. Essar Oil operated India’s second largest single-location oil refinery at Vadinar, Jamnagar district, Gujarat which had started commercial production on May 1, 2008.

The refinery operated at more than 100% capacity for approx. next 5 years, however it started reporting financial losses from 2011-12 onwards partly resulting from Essar Oil’s July 2009 acquisition of 50% stake in Kenya Petroleum Refineries Ltd and a Sales Tax demand of approx. 8000 Cr. from Gujarat Government.

Essar Oil was delisted in December 2015 through “the largest privatisation bid in the history of corporate India” and over Rs. 3,955 Cr. was paid to the shareholders. Later in June 2016 Essar Oil sold its complete stake in Kenya Petroleum Refineries towards reducing the company’s debt burden.

Birth of Nayara Energy

In August 2017, through the largest FDI in India’s energy sector, Essar Group gave up control of its flagship Essar Oil by selling 49% stake to Russia’s state-owned energy giant Rosneft and another 49% to a consortium led by Trafigura and United Capital Partners investment group for a total of US$ 12.9 billion, providing relief to many lenders, the major ones being Russian lender VTB, ICICI Bank, Axis Bank and others. The definitive agreement leading to this deal was signed in October 2016 during the BRICS Summit in Goa in the presence of Indian Prime Minister Narendra Modi and Russian President Vladimir Putin.

Essar Oil encompassed following major assets:

• 20 MMTPA capacity Vadinar refinery in Gujarat with associated refinery infrastructure
• Vadinar Port with 58 MT / annum cargo handling capacity
• 1,010 MW multi-fuel Captive Power Plant at Vadinar providing both energy and steam to the refinery
• Over 3,500 retail outlets across the country

Nayara Energy’s state-of-the-art refinery had achieved high complexity index of 11.8 up from 6.1 in less than four years (while it was Essar Oil).

Nayara Energy

Apart from the distinction of operating India’s 2nd largest single-location refinery Nayara Energy also owns India’s largest private fuel retail network comprising some 5,000 operational outlets. Nayara is using its large land bank from Essar Petrol Pumps to increase visibility and revenue through Non-Fuel Retail (NFR) operations. Some of the brand partnerships include Exide, Castrol, J-K Tyres, SBI, Western Union, Café Coffee Day, Heritage Foods, National Seeds Corporation.

Nayara Energy is also providing multi-fuel options to customers through tie-ups with various companies such as GAIL, GSPC, Adani Gas for selling CNG and with MGL, Aegis Logistics for selling Auto LPG in its outlets. Also through partnerships with Oil Marketing Companies Nayara Energy can use their terminals for placing and marketing its products.

Nayara Energy – Future Expansion Plans

In January 2019 Nayara Energy signed two MoUs with the Gujarat Government at Vibrant Gujarat Summit committing to invest $850 million to greatly expand its petrochemicals business. Under the terms of the MoU, phase 1 of the expansion plan will see the establishment of a new refinery and petrochemical units: 450,000 tonnes a year Propylene Recovery Unit (PRU), a similar capacity Polypropylene plant and a 200,000 tonnes a year MTBE (methyl tertiary-butyl ether) plant. Refining capacity would be added to produce Euro-VI grade petrol and diesel. The projects are targeted to be completed by 2022-end and the company seems all set for its action plan as it has recently received and renewed necessary environmental clearance.

Also as per the MoU Nayara Energy shall initiate smart agriculture and water conservation program over 11,000 hectares in the area.

Nayara Energy’s retail presence is set to rise to approx. 7500 locations as about 2,600 locations are under various stages of completion. This, coupled with NFR is expected to boost retail sales as well as visibility across the country.

Nayara’s recent Oil Security and Operations related hiccups

There have been recent issues with Nayara’s crude input security due to the developing Geo-Political climate. Nayara Energy had been one of the country’s biggest buyers of Iranian oil, but from June 2018 it began cutting imports and from November 2018 stopped imports of Iranian Oil after the United States scrapped a nuclear deal with Tehran and said it would re-impose tough sanctions. Soon Nayara started to turn towards other suppliers, the major ones being Venezuela, Mexico and Brazil.

Buying crude from Venezuela also doesn’t seem to be a permanent solution for the refining giant since the US had imposed a series of sanctions on Venezuela recently in order to squeeze its oil revenue causing a concern for Nayara energy as it imports approx. 65000-70,000 barrels per day from Venezuela. There were reports recently that the government of India was working on a proposal for Rupee payment for Venezuelan Oil imports amid US sanction. However, it appears that under US pressure Oil imports from Venezuela have been suspended.

Nayara Energy’s Vadinar refinery underwent a major maintenance exercise recently which severely affected production. According to the data from shipping Industry Nayara Energy had shipped 36 % more oil in January than the previous month as it resumed operations after the month long maintenance that ended in December.

One of India’s Important Growth Engines

Today Nayara Energy is an integrated oil company encompassing the entire value chain from processing of crude to refining, downstream petrochemicals to marketing and retail sales of various products across India.

Nayara’s Refinery and Petrochemicals expansion is targeted on production of Euro VI grade petrol and diesel along with massive expansion in petrochemicals. This major expansion along with development of smart agriculture and water conservation program would lead to major development in Devbhumi Dwarka District of Gujarat as well as help local communities.

Nayara Energy with its planned expansions would certainly contribute towards India achieving its ambition of meeting the projected demand of 335 MMTPA (of refined petroleum products) by 2030 and 472 MMTPA by 2040.

EGFL is a global investor, controlling a number of world-class assets diversified across the core sectors of Energy, Infrastructure (comprising Ports and EPC businesses), Metals & Mining, and Services (Shipping, IT and Retail businesses).
Trafigura is one of the world’s leading commodity trading and logistic companies.
United Capital Partner (UCP) Investment Group is one of the largest financial investment groups in Russia.

This article has utilized some inputs from following sources:
Nayara Energy, Essar, Livemint, PTI, The Times of India and Reuters