HPCL Barmer refinery seen onstream by 2016

Hindustan Petroleum Corp Ltd (HPCL), India’s third-largest oil marketer, has set a 2016 date to commission its proposed refinery in Barmer, Rajasthan.

The company is preparing a detailed feasibility report (DFR), which will outline the sops, sourcing of crude, equity structure, etc. The report is sent to the company’s Board and the Rajasthan government for approval.

State-owned Engineers India is the consultant for the project and the report is expected to be ready in a few months, a senior company official said.

While finer details are yet to be worked out, HPCL will hold the majority 51% share of the proposed 9 million tonne per annum (mtpa) refinery, while the state government will take equity in lieu of land on which the refinery will be built. State-owned explorer ONGC, too,  will hold a token equity in the project.

“If all works out fine, we can begin the construction as early as the start of the next fiscal and then within four years we will bring it onstream,” the official said.

Also, HPCL has set a target of matching its production capacity with the sales volumes by the fiscal 2016-17.

“We have an internal target called Shikhar 42-42, under which by 2016-17 we plan to reach refining and sales volumes of 42 mtpa each. Hence, our focus is highly diverged towards our core business,” said the official on a query about diversification of business portfolio like BPCL, which has struck big in upstream activities.

The company currently has a refining capacity of 25 mtpa, which includes 16 mtpa standalone and 9 mtpa through recently commissioned refinery at Bhatinda, Punjab, under a joint venture — Hindustan Mittal Energy Ltd.

The Barmer refinery was proposed in 2004-05 when Cairn India discovered oil in the Barmer basin in 2004.

Then ONGC, which had 30% stake in the oil fields, proposed a 7.5 mtpa refinery which would consume the entire crude from the Mangala, Bhagyam and Aishwarya fields. However, later ONGC backed out citing unviability of the project as the state government did not agree to the sops the company had asked for.

Also, Cairn India was not keen on the refinery as it wanted to value-add through its expertise in upstream sector than getting into downstream projects.

In 2009, Prime Minister Manmohan Singh asked the petroleum ministry and ONGC to reconsider the project.

Since then the state government had been in talks with ONGC and downstream players for setting up the refinery.

While India is in an oversupply situation, analysts said for government-owned oil marketing companies it always makes sense for adding refining capacity as their sales are much higher than their own capacity.

This forces them to procure refined products from private refiners such as Reliance and Essar at a premium. So adding refining capacity will help the company in meeting demand internally.

India’s current consumption is close to 150 mtpa and is growing at a rate of 6 mtpa annually against a total supply of up to 220 mtpa. Out of this, 85 mtpa is contributed by private refiners -- Reliance Industries (65 mtpa) and Essar Oil together.