MRPL’s curtails refinery production due to water shortage

Mangalore Refinery and Petrochemicals, a subsidiary of Oil & Natural Gas Corporation, has shut down two of its refinery units, as water supply to its plant has been cut off by the local authorities. The Nethravathi river supplies water to its refinery, and the river’s levels have dropped to very low levels, apparently due to hot weather conditions, according to this report in the Daily News and Analysis

MRPL released a statement to the stock exchanges, stating that the refinery was drawing down 5.5mgd (million gallons per day) of water per day, which was reduced to one-third by the district administration and has been completely stopped from April 11. The company has water reserves to meet its full requirement for only 1.5 days. That has led to its decision to shut down the second and third phases of its plants from Thursday. The company processes crude oil at its refineries, to derive products such as aviation turbine fuel, petrol, diesel, naphtha, LPG, and furnace oil.

The third plant was commissioned recently, on March 29, hiking MRPL’s capacity to 15 million tonnes, from 11.82 million tonnes. MRPL’s website says it was set up in 1988 with an initial capacity of 3.69 million tonnes, which was then expanded to 11.82 million tonnes. That implies its current operational capacity is down to 3.69 million tonnes, or nearly a fourth of its total capacity. This development will mean loss of production during the June quarter.

The company has not mentioned in its statement if the current stoppage will be covered under its existing insurance policies. Certain insurance policies protect companies from the loss due to events such as this. If it does, then the effect will be more on investor sentiment. If it does not, then lower production will translate to lower sales, under-utilisation of its facilities, and likely lead to significant losses. What is certain that this will disrupt the supplies of petroleum products from MRPL, which will create some shortages for its customers.

This can be mitigated if the monsoon sets in early, as rising water levels will see the district administration resume supplies. The river supplies drinking water to Mangalore city, and what remains to be seen is if the shock that the authorities must have got will lead to more careful use of water in the future, and how it will affect supplies to units such as MRPL. If the administration decides to hold more water in reserve for drinking water, it may reduce the amount available to companies. But the immediate concern should be what happens once MRPL’s existing water reserves run out, as that may mean a complete plant shutdown.

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