Story of Reliance Industries – Hydrocarbon Business
Dr. Partha heads strategic planning and long-term initiatives at Reliance Industries Ltd and he readily agreed to speak to the international students of Double Degree-Essec Bocconi Program. Mr. Kaushik Mitter, Senior Vice President Human Resources at Reliance Jio supported the entire coordination. Prof Dr. Anjana Grewal -Senior Professor and Senior Director-SDA Bocconi Asia Center was keen that the Reliance Story be presented to the young international audience during her course-Doing Business In India.
Dr. Partha wished to inspire the students by telling them the story of the RIL -Hydrocarbon Business from the time of its inception.His talk was not only inspiring; it was a masterclass in “Economies of Scale”
The focus of his talk was on the Jamnagar refinery which included key points:
- History of Reliance Industries hydrocarbon business-how it started from extremely small roots and has grown to become a giant in this business globally.
- Why Jamnagar is bullet proof in terms of profitability and competitiveness – will make money in good times and stay above water in bad times..
He respectfully remembered the then Chairman – Mr. Dhirubhai Ambani who caught a trend – a shift from the use of cotton to polyester. He saw this as an opportunity and set up a textile mill in the 70s.
Naroda Factory in Gujarat giving birth to the brand “Vimal”. However, the larger dream was to substitute the polyester imported from outside the country with one that was home grown. Thus came the idea of indigenous production of the material.
The Jamnagar oil refinery was initially set up to produce the raw materials which would in turn be utilised to produce polyester. It was started as the world’s biggest refinery in terms of its capacity producing approximately 650,000 barrels/day to now producing almost 1.4 million barrels/day.
Dr Partha believes that the success of the Jamnagar oil refinery stands on 5 factors and everything ultimately boils down to competitiveness. He detailed the 5 pillars to the audience who listened with rapt attention.
First is the level of capacity at which the refinery operates. By producing 1.4 million barrels/day, it is the world’s largest refinery with having 50% more capacity than the second largest refinery which is in South Korea. This makes them a super-giant refinery. Being a capital intensive in nature, what helps them sustain the cost is economies of scale via which the fixed cost gets spread over the number of units produced.
Second is their venture into the petrochemical business. Apart from their mainstream business, Mr. Partha said that they are also looking at other possibilities where they want to expand into petrochemicals which currently stands at 20% which they envision to expand to a minimum of 70%. by 2035 –“Oil to Chemicals”
Third is the level of complexity at which they operate. Said Mr Partha: “When we say complexity, we mean that it can convert even the worst quality crude into premium quality petroleum product and is one of the few rare refineries being able to do this.”
Fourth is the fact that they export most of their produce to more than 100 different countries enabling them to give tough competition to other international players
This includes the export of mangoes which are produced in the mango orchard which again serves as an additional- side business for Jamnagar refinery. Starting with 50,000 mango trees, today the premises have almost 140,000 such trees. About 60-70% of the produce is consumed in India and the surplus is exported in various forms.
As reported this is Asia’s largest mango orchard.
The 5th pillar is that the Jamnagar refinery is the among the most profitable refineries in the world. The comparison is with Singapore. These are the five pillars which provide strength to the oil refinery business making it a success story for generations to hear. The audience had questions which were well answered. All listened to the RIL Hydrocarbon Business Story with rapt attention.