Indian Oil, BPCL and HPCL may hold 51% stake in Maharashtra refinery

Mumbai: Indian Oil Corp. Ltd (IOCL), Bharat Petroleum Corp. Ltd (BPCL) and Hindustan Petroleum Corp. Ltd (HPCL) may jointly hold a 51% stake in a large refinery and petrochemical complex proposed to come up in coastal Maharashtra, two people familiar with the development said.

The state government and a strategic investor who is yet to be brought in will hold the rest.

The 60 million tonnes per annum (mtpa) refinery will be built at Rs.1.5 trillion in two phases of 40 mtpa and 20 mtpa. The oil marketing companies (OMCs) will form a special purpose vehicle (SPV) for the project, oil minister Dharmendra Pradhan had said on 6 June.

“The three OMCs would be holding a 51% stake between them. The Maharashtra government may also be an equity partner, and hold up to a 5% stake, with the rest going to the strategic investor. Usually in such ventures, state governments take a token stake,” said an investment banker, one of the two people mentioned above, who did not want to be identified.

“The refinery would be an SPV-like an entity, with some new marketing network. The primary structure has been formed and we have offered the refinery to Saudi Aramco as a prospective partner. Maharashtra government is also a partner in this project. They have found the land for us and our technical team is looking into the details of that,” Pradhan had said.

Emails sent to the three OMCs and Saudi Aramco went unanswered.

“The technicalities of the venture have already been worked out. We have already come to an understanding as to what should be the model between us. Being the larger player, we will certainly have a larger share,” said a senior official from IOCL on condition of anonymity.

The OMCs have finalized the configuration and petrochemical linkages that the refinery would have, the IOCL official said, adding, “We need to firm up on the exact piece of the land after which the detailed feasibility report would be commissioned.”

The government has appointed Engineers India Ltd as technical agency to prepare a detailed feasibility report (DFR).

Construction will begin by March 2017, Pradhan had said on 28 December 2015. However, the investment banker cited above said the target could be too ambitious. “Preparing a DFR takes nearly 8-10 months. Then, there would be deliberations on financing options, tax concessions and various board approvals that need to be in place. A refinery of this magnitude will easily take a decade to come up,” said the investment banker.

Procurement of land has been the biggest obstacle for BPCL and HPCL which have two refineries in Maharashtra—12 mtpa (BPCL) and 8 mtpa (HPCL)—located in Mumbai.

The existing refineries of both HPCL and BPCL are landlocked. While BPCL decided to set up the Bina refinery in Madhya Pradesh to expand capacity to 15 mtpa, HPCL’s expansion has not received the necessary clearances.

In 2010, HPCL had decided to build a 9 mtpa refinery in Maharashtra’s Ratnagiri district. A year later, a panel led by ecologist Madhav Gadgil categorized the entire hill range of Western Ghats as ecologically sensitive, putting its plan in jeopardy. The moratorium was applicable up to 2014.

Another refinery planned by HPCL at Pachpadra in Barmer district of Rajasthan two years ago has not made progress either. IOCL, the nation’s biggest refiner, on the other hand, has been planning to set up a new refinery on the west coast for some years now, and had supposedly decided Gujarat and Maharashtra as two locations for its new refinery.

IOCL, with a total refining capacity of 80.7 mtpa runs 11 of India’s 23 refineries. It has the largest share of national refining capacity at 35%.

“India’s current refining capacity is 230 mtpa, including the recently commissioned 15 mtpa IOC refinery at Paradip. Oil product demand, however, stood at 161.5 mtpa in 2014, making the country an exporter. So, demand is not growing in tandem with supply. In such a case, the value addition that a mega refinery would bring in needs to be studied closely,” said an analyst with a domestic brokerage on condition of anonymity as he is not allowed to speak to the media.