HPCL Closing in on Project Site for Proposed Greenfield Refinery in Maharashtra

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Researched by Industrial Info Resources (Sugar Land, Texas)--Integrated oil refining and marketing company Hindustan Petroleum Corporation Limited (BSE:500104) (HPCL) (Mumbai) has selected the Lote Parshuram area in Maharashtra's coastal Ratnagiri district as the site for its upcoming 9 million- to 15 million-ton-per-year refinery, which is being planned to meet the increasing demand for refinery products from western India. Further, the company's existing--but aging--Mumbai refinery will require a massive investment for modernization. Instead of making that investment, the company has decided to set up the greenfield refinery in the next three to four years.

"In order to meet the growing demand in western India and to secure and strengthen our position in this market, we felt it necessary to pursue the option of setting up a new greenfield refinery on the west coast of Maharashtra," said Subir Roy Choudhury, the chairman and managing director of HPCL.

The investment outlay for the new refinery has been reported to be about $3.3 billion, although there have been no official announcements. An official did say that the new refinery is likely to be funded in a debt equity ratio of 2:1 or 2.5:1. Nevertheless, HPCL has set aside about $226 million for modernizing the Mumbai refinery to some extent. The Mumbai refinery is spread across an area of 350 acres, which does not allow expansion. The market rate of the land around the refinery is $9 million to $11 million per acre, and if the company were to expand the project area, the cost of land alone would run into billions of dollars.

"The refinery in Mumbai is spread across 350 acres, while for refinery of such a size, at least 2,000 acres are required," a company official said. "We think that when the new refinery is completed, the Mumbai facility might be shut down.'' He said that such a decision would be made after six to seven years.

Feasibility studies are under way, and land for the project is being identified. The project is expected to require about 1,500 acres. The company also will need to obtain the necessary environmental clearances before commencing work on the refinery project. The project is expected to be completed within 48 months of obtaining all approvals.

"We are commissioning a feasibility study, which we expect will be completed in six months," the official said. "An investment decision will be made based on the feasibility study."

HPCL currently operates the 6.5 million-ton-per-year Mumbai refinery and the 8.3 million-ton-per-year Visakh refinery at Visakhapatnam, in Andhra Pradesh. The company is building the 9 million-ton-per-year Guru Gobind Singh Refinery project at Bhatinda in Punjab, as a joint venture project with Mittal Energy Investment Pte Limited (Singapore), which is a Lakshmi N Mittal Group company. The refinery is expected to be completed in 2011.

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