KUALA LUMPUR (Reuters) - Indian refiner Bharat Petroleum Corp will continue to buy crude from Iran this fiscal year at 250,000 tons, its chairman said on Tuesday, dismissing earlier reports that it may stop the purchase.

The state refiner is also expected to start production in the first quarter next year from its new 120,000 barrels per day (bpd) Bina refinery in central India, and output is set to hit 5.5 million tonnes a year from then, said Ashok Sinha.
Asked if the refiner is buying Iranian crude this year, Sinha, who is also BPCL’s managing director, told Reuters: “That is the plan.”
Even though Iranian grades are not ideal for BPCL’s refining, they are necessary in order to diversify its crude sources, he told Reuters on the sidelines of the Asia Oil and Gas Conference. BPCL renews the supply contract on a yearly basis.
In March, a BPCL source said the refiner may not buy Iranian grades this year because of operational problems and less margins since it was not proving good in their system.
Sinha also said that BPCL’s oil products marketing margin has fallen to around $1.00 per barrel within the past two weeks, from the usual $1.00-$1.50 range due to higher global crude prices.
The crude price rally -- up 3 percent so far this month to $68.50 a barrel, and 30 percent in May alone -- has raised distribution costs for BPCL and buoyed market-driven wholesale fuel prices in India, squeezing profits off state-capped retail rates.
“It’s the marketing margins that’s getting squeezed at the moment... The problem is not so much the refining side,” he said.
Sinha said BPCL’s complex refining margins stand at $3.00-$4.00 a barrel, matching benchmark levels in the Singapore oil hub, which have fallen to $3.82 in the last five days from $6.00-$7.00 in the first two months of the year.
------------Refining capacity
BPCL had earlier scheduled for the refinery in Bina to be ready by end-2009. “By the end of the first quarter, we should be doing full production,” Sinha said.
Gas oil would take up 47 percent of the 5.5 million tons production target, gasoline and jet fuel 10 percent each, liquefied petroleum gas 3 percent, with naphtha the balance of this product slate, he added.
The new plant will relieve BPCL’s current needs to buy fuel from other Indian refiners to top up retail sales requirements.
The state-owned refiner runs a 240,000-bpd Mumbai facility and a 160,000-bpd Kochi plant, both of which are running at full tilt following turnarounds, despite the thin margins.
“We’ve gone back to full. I sell much more, my market is much bigger than my refining capacity,” Sinha said when asked if bad margins have an impact on BPCL’s crude run rates.
He said BPCL shys away from imports to top up its retail needs due to logistic costs involved, and instead rely on other Indian refiners -- mainly rival state-owned Mangalore Refinery Petrochemicals Ltd and privately held Essar Oil and Reliance.
BPCL is upgrading its Kochi and Mumbai refineries this year to produce fuel matching Euro IV standards. Sinha said the projects and Bina refinery would cost BPCL close to $3 billion.
Apart from Mumbai and Kochi, BPCL also runs a 60,000-bpd refinery in northeast India through a subsidiary, Numaligarh Refinery Ltd.
Sinha said BPCL, which has upstream interests in Brazil and Mozambique, would set aside $200 million for the fiscal year ending March 2010 for exploration and production developments.
He expects appraisal to be completed by November for the projects in Brazil, where BPCL are partners in 10 oil and gas blocks. Mozambique is still in exploratory phase, he added.