New Delhi: With ONGC deterring from building a refinery in Rajasthan, state-owned Hindustan Petroleum (HPCL) has expressed interest in setting up a 9 million tonne unit at the site of the massive oil find at Barmer district.

HPCL, which owns a refinery at Mumbai and Visakhapatnam in Andhra Pradesh and is equal partner in the just commissioned Bhatinda refinery in Punjab, is keen to take up the project, sources privy to the development said.

Oil and Natural Gas Corp (ONGC), which owns 30 percent interest in the Barmer oilfields of Cairn India, had in 2005 committed to building the refinery but later started soft- peddling the project.

Sources said HPCL has now entered the fray and has proposed to take 51 percent stake in the project. ONGC, which originally had the authorisation from the government for processing the Barmer crude at the proposed refinery, would hold 26 percent interest.

Cairn India, which holds 70 percent interest in the fields, currently produces about 175,000 barrels per day oil (8.75 million tonnes a year) from the Rajasthan fields and has potential to go up to 300,000 bpd (15 million tonnes).
Sources said Rajasthan government has started the process of land acquisition of about 926 hectares.

Cairn India's Barmer find is now estimated to hold 6.5 billion barrels (900 million tonnes) of oil equivalent in place.

Production from Mangala oilfield, the largest of the 24 finds in the block, started on August 2009 and currently Mangala, Bhagyam and Aishwariya fields are producing about 175,000 bpd.

ONGC, after the exit of its flamboyant chairman Subir Raha whose brainchild was the setting up of the refinery, got SBI Caps to do a Financial Appraisal Study for the Rajasthan refinery.

The study found that a 7.5 million tonnes unit at Barmer would give just 1.15 percent return and the company sought fiscal support at the rate of Rs 1,300 crore per annum in interest free loan for first 16 years.

With state persisting with the project, the Centre appointed a BC Tripathi Committee, which recommended that the state government take 26 percent equity in the project and give 50 percent exemption in excise duty to make it viable.

After submission of the Tripathi Committee report, ONGC once again examined detailed feasibility for a 4.5 million tonnes unit capacity through EIL in 2010 and subsequent financial appraisal by SBI Caps in 2011.

As per the financial analysis of the merchant banker, the project was not viable on standalone basis and required interest free loan of approximately Rs 1,100 crore per annum for 15 years from Rajasthan government.

Sources said the state government accepted Tripathi Committee's recommendations. It also entered into marketing tie-up with BPCL on February 7, 2011.

At that point, ONGC indicated that it along with Rajasthan government could hold a combined equity of 44 percent in the project. The balance 56 percent could come from EIL (5 percent), a PSU oil retailer (26 percent) and 25 per cent through an IPO.

However, HPCL now intends to take up 51 percent stake in the proposed refinery. Engineers India (EIL) has also offered to participate in Rajasthan Refinery Project with an equity participation of 5 percent. The final equity structure is yet to be finalised.

Sources said the Rajasthan refinery would be authorized or nominated to off-take crude from Cairn's RJ-ON-90/1 block and Barmer-Salaya Pipeline for the import of crude in case of crude depletion from Barmer Block.

Also, government may be requested to exempt 50 percent excise duty for 5 years on Rajasthan Refinery Project as per recommendation of Tripathi Committee, they added.


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