Hindustan Petroleum's Barmer Refinery Project Stares At Cost Overrun

New Delhi: Hindustan Petroleum Corporation's 9-million tonne (mt) a year Barmer refinery in Rajasthan, which has been in the works for over four years now, will cost Rs 41,000-42,000 crore, up from the previous estimate of Rs 37,320 crore.

HPCL had in March 2013 signed a memorandum of understanding (MoU) with the Rajasthan government for setting up the refinery-cum-petrochemical complex in Thar Desert near the oil discoveries made by Cairn India.

But the refinery never took off as a change of guard in the state led to Rajasthan government putting on hold the fiscal incentives for the project.

"We are talking to the state government explaining to them the reconfiguration of the unit," HPCL director (refineries) Vinod S Shenoy told PTI here.

While the size of the refinery remains the same, the unit will cost more because it now has to be built to produce Euro-VI grade petrol and diesel, he said.

"The project will cost more than the earlier estimate of Rs 37,000 crore," he said, adding that Engineers India Ltd (EIL) has been asked to do a feasibility study.

While stating that the cost numbers have not yet been worked out, he said the project may need Rs 4,000-5,000 crore more.

Mr Shenoy said the discussions with the Rajasthan government have not reached the stage of negotiating the exact fiscal concessions that the company would need to set up the project.

In March 2013, the HPCL board had approved setting up of the complex at a cost of Rs 37,320 crore.

Half of the crude oil requirement at the proposed refinery at Barmer was to come from the neighbouring oil fields of Cairn India. The rest was to be imported crude.

At that point, HPCL had asked the state government to extend fiscal benefits like the ones extended by Gujarat and Odisha to new refinery projects to make the Barmer unit viable. The concessions included 50 per cent exemption in excise duty and the state government picking a small stake in the project.

Originally, the state-owned Oil and Natural Gas Corporation (ONGC), which owns 30 per cent interest in the Barmer oil fields of Cairn India, in 2005 had committed to building the refinery, but later started soft-pedaling the project.

In 2012, HPCL entered the fray and proposed to take a 51 per cent stake in the same. ONGC, which originally had the authorisation from the government for processing the Barmer crude at the proposed refinery, willingly made way for HPCL.

Cairn India, which holds a 70 per cent interest in the fields, currently produces about 1,65,000 barrels per day oil (8 million tonnes a year) from the Rajasthan fields.

There may be possibility of Vedanta, which in 2011 acquired Cairn India for $8.67 billion, taking a small equity of 2-3 per cent in the project.

Sources said the Rajasthan government in 2013 had started the process of land acquisition of about 926 hectares, but it was put on hold.

For HPCL, which has only two refineries in Mumbai and Visakhapatnam, the project would have helped meet fuel demand in the north.