Reliance to buy 25% in Yemen refinery

KOLKATA: Yemen is turning out to be a happy hunting ground for Reliance Industries Ltd (RIL). The Mukesh Ambani-controlled company is likely to invest $33.78 million to pick up a 25% stake in a $450 million greenfield refinery in Yemen.

RIL already has a 25% stake in Yemen’s onshore Block 9 named Malik which started yielding crude in commercial quantities, last month.

The greenfield Yemen refinery is being developed by a start up firm—-Ras Issa Refinery Company (RIRC) in which Yemen’s HoodOil Ltd is the principal promoter with 50% equity stake. International Finance Corporation (IFC), the private sector lending arm of the World Bank, proposes to invest $5 million to pick up a 3.7% stake in RIRC.

Besides, IFC is also considering chipping in $45 million in this joint venture by way of term loans.

The IFC board is likely to approve the investments on March 15, 2006, keeping in view RIL’s project execution credentials. Private investors from Yemen and the Middle East would subscribe to the balance equity of RIRC.

HoodOil is a flagship company of Yemen’s largest private business house named Hayel Saeed Anam (HSA) group. Of course, this is not the first time that RIL and HoodOil are collaborating.

Both HoodOil and RIL have participating interest of 25% each in Malik. Calvalley Petroleum Inc. of Canada, which is the operator of Malik, hold the balance 50% stake in the asset.

In its project summary on the proposed refinery, IFC has noted that “the founders of HAS and RIL have longstanding ties and the groups are engaged in various commercial endeavours. The partnership with RIL is crucial for the success of the project, given that RIL has built and operates one of the largest refineries in the world and therefore has a strong operational and technical track record.”

RIL operates the world’s third largest single-location refinery at Jamnagar in Gujarat with a capacity to process 33 million tonne per annum (mpta) of crude.

It is now hiking the capacity to 63 mtpa. When commissioned in March 2008, it would stand out as the world’s largest single-site refinery in the global refining hierarchy.

Though RIL is keeping its overseas business strategy close to its chest, business analysts believe that RIL’s participation in RIRC would be much more than equity investment. The company is expected to not only guide the joint venture in project execution but also in operating the refinery.

Although HAS is a diversified conglomerate and long standing in the business, it has no presence in the downstream sector. Moreover, it has not undertaken a project of this size before. The participation of RIL and IFC in the project is thus considered vital for its success.

According to consultancy HMR Consultants, “It is at present envisioned that a highly credible and substantially credible international company will operate the refinery with its own experienced staff until transfer of technology and skills by training on the job at Ras Issa and other refineries would facilitate HoodOil to eventually operate and manage the refinery operations based on the acquired expertise.”

The refinery will be sited at Ras Issa, which is a peninsula on Red Sea coast in Yemen. HoodOil has already acquired land for the refinery and associated facilities including a jetty and pipelines.

The refinery will have capacity to produce 60,000 barrels per day of different refinery products. This roughly amounts to 3 mtpa capacity at a conversion rate of 7.3 barrels to a tonne and assuming round-the-year operations.

The refinery’s product-mix would include petrol, diesel, aviation turbine fuel, kerosene, liquefied petroleum gas and benzene.