Barmer refinery unviable without all crude from Cairn: HPCL

Hindustan Petroleum% Corp Ltd (HPCL) has told the Oil Ministry that its proposed Rs 24,000 crore refinery at Barmer in Rajasthan will be unviable unless it is given all of the crude oil that Cairn India produces from oilfields in the state.

HPCL last week asked the ministry to give firm allocation of Rajasthan crude oil for at least 10 years for it to begin work on the 9 million tonne a year refinery, sources with direct knowledge of the deliberations said.

Cairn produces about 175,000 barrels a day or 8.75 million tonne a year of crude oil from its Mangala and other fields in the Rajasthan block. Going fowards, the firm is projecting an output of 300,000 bpd (15 million tonne).

But the approved plateau is only 175,000 bpd and there is no certified data available to state that this level will last for the next 15 years (five years for refinery construction and 10 years allocation as requested by HPCL).

Sources said an inland refinery is not feasible unless it has a definite source of crude oil for initial 10 years of operations. Without a crude source, it does not make any sense to build an inland unit and the company would rather look at a coastal option where crude oil can be imported from abroad.

For an inland refinery, crude oil will have to be first imported at a port on the west coast, probably in Gujarat, and then transported to hinterland through an expensive pipeline.

Crude oil produced at Rajasthan is transported through world's largest heated pipeline from Barmer to refiners like Reliance Industries and Essar Oil in Gujarat.

Sources said if Rajasthan crude oil is allocated to the proposal refinery, this pipeline can be used for transporting imported crude oil from Gujarat coast in subsequent years.

HPCL is to hold 51 per cent stake in the proposed refinery project while state-owned engineering consultancy firm EIL would take 5 per cent.

Vedanta Resources, which last year acquired Cairn India for USD 8.67 billion, is interested in taking a small equity of 2-3 per cent in the project.

Oil and Natural Gas Corp (ONGC) and Oil India Ltd and Rajasthan government too are keen on a stake in the refinery.

ONGC, which owns 30 per cent interest in the Barmer oilfields of Cairn India, had in 2005 committed to building the refinery in Rajasthan but later had a change of heart.

Sources said after HPCL decided to take up the project, ONGC, which originally had the authorisation from the government for processing the Barmer crude at the proposed refinery, too evinced interest in taking 26 per cent stake.

However, HPCL is not keen on giving anything more than 16.96 per cent to ONGC. This being equivalent to the stake that ONGC has allowed HPCL to hold in Mangalore Refinery and Petrochemicals Ltd.

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