India's HPCL Announces $6.6 Billion Investment in Greenfield Refinery

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Researched by Industrial Info Resources (Sugar Land, Texas)--India's state-owned Hindustan Petroleum Corporation Limited (BSE:500104) (HPCL) (Mumbai) will invest about $6.6 billion to set up a greenfield 385,000-barrel-per-day (BBL/d) refinery along the west coast of Maharashtra. The new refinery in Maharashtra has been planned to help meet the high demand for petroleum products from western India. HPCL Chairman and Managing Director Subir Roychoudry spoke to the media about the project after announcing the company's second-quarter results.

HPCL-Mittal Energy Limited (HMEL) (Mumbai), a joint venture of HPCL and Mittal Energy Investment Pte Limited (Singapore), is currently setting up the 192,000-BBL/d Guru Gobind Singh Refinery at Bhatinda in Punjab. The mechanical completion of the project is expected to be achieved by March 2011 and the plant is scheduled to reach peak capacity by September 2011. Mittal Energy Investment is a Lakshmi N Mittal Group Company.

Another reason for a new refinery in Maharashtra is the fact that the company's existing 139,000-BBL/d Mumbai refinery is aging, and expansion is not economically feasible because of extraordinarily high land prices in the area. A company official is reported to have said that the Mumbai refinery occupies 350 acres, while a refinery of such a size should have at least 2,000 acres of land. Once the new refinery begins operations, the Mumbai refinery may be closed down. The company has not yet made an official announcement about the possible refinery closure.

Engineering consultancy firm Engineers India Limited (BSE:532178) (New Delhi) has been contracted to perform the feasibility report on the proposed refinery. The detailed feasibility report is scheduled to be completed by December. HPCL is considering a single 385,000-BBL/d unit or two 192,000-BBL/d units. Configuration studies are currently under way. The refinery is expected to be completed within 48 months of securing all regulatory and environmental approvals.

The land earmarked for the new refinery is between the districts of Ratnagiri and Raigad in Maharashtra. Roychoudhury said, "We have been told that 1,800 acres are available with the Maharashtra Industrial Development Corporation. We have asked for 1,000 acres more."

In the Bhatinda project, HPCL and Mittal Energy Investment hold equal stakes of 49% each. The remaining 2% is owned by financial institutions. When completed, the $4 billion refinery will supply petroleum products to Delhi, Haryana, Punjab, Uttar Pradesh and parts of Bihar. HPCL is currently completing a product pipeline from the refinery site to Delhi, which is well connected by railway to Uttar Pradesh and Bihar. The Bhatinda refinery project is HPCL's first refinery in northern India and is of critical importance for the company. HMEL may launch an initial public offering (IPO) after the refinery is commissioned. The joint venture is likely to offer an initial equity of 20% for the IPO and then plan a follow-on public offering at a later date. Both companies are likely to finally have a stake of 26% in the venture.

Among other developments, HPCL plans to revive its expansion project at the existing 177,000-BBL/d Visakh refinery at Visakhapatnam in Andhra Pradesh. The expansion project was envisaged in 2007, but was stalled because of the global economic slowdown and because two of the project partners, Mittal Energy and oil and gas major Total SA (NYSE:TOT) (Paris, France) pulled out of the project. Natural gas company GAIL (India) Limited (BSE:532155) (New Delhi) and Oil India Limited (BSE:533106) (Noida, Uttar Pradesh) were the other project partners in 2007.

The company has now announced an investment plan of $2.9 billion to ramp up the capacity of the refinery to 320,000 BBL/d by 2013-14. The project will now be implemented by HPCL alone. The company is likely to add a 192,000-BBL/d crude distillation unit (CDU) and remove the existing 38,000-BBL/d CDU. Roychoudhury said, "We already have acquired land for the project. The project will take three years to complete."

For related news item, see September 28, 2010, article - India's HPCL to Revive 300,000-Barrel-per-Day Refinery in Andhra Pradesh.

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