India's HPCL to Commission 9 Million Ton Refinery in Punjab

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Researched by Industrial Info Resources (Sugar Land, Texas)--The Global Fortune 500 company, Hindustan Petroleum Corporation Limited (BSE:500104) (HPCL) (Mumbai) plans to commission the Guru Gobind Singh refinery in Bhatinda, Punjab, by the first quarter of 2011. The refinery project is a joint venture between HPCL and Mittal Energy Investment Private Limited (Singapore), a subsidiary of ArcelorMittal (NYSE:MT) (Luxembourg).

Upon commissioning, the refinery will have a production capacity of 192,000 barrels per day (BBL/d) of petroleum products conforming to the Euro IV emissions standards. The project will also consist of a 1,012-kilometer pipeline from Mundra, Gujarat, to Bhatinda, a crude oil receiving terminal and single point mooring in Mundra, and a 165-megawatt power plant for the refinery. According to reports, the project is about 25% complete.

Both HPCL and Mittal hold a 49% share in the joint venture, with the remaining 2% held by financial institutions. The total investment in the project is anticipated to be about $3.65 billion, approximately $2.5 billion of which has already been committed. The project will be financed in a 1.5:1 debt-to-equity ratio and each major partner will contribute $770 million.

The Guru Gobind Singh refinery appears to be headed for completion, although reports in April suggested that ArcelorMittal might pull out of the project because of a lack of tax incentives. However, developments do not bode well for the Barmer refinery in Rajasthan proposed by Oil and National Gas Corporation Limited (BSE:500312) (ONGC) (Dehradun, Uttarakhand).

The Barmer refinery project was announced five years ago in 2004, with a proposal to build a 160,000-BBL/d unit, following the discovery of three hydrocarbon fields by Cairn India Limited (BSE:532792) (Mumbai) in Mangla, Bhagyam and Aishwariya. The cost of the project was estimated at about $200 million when first announced, but later investigations revealed that the proposed refinery was considered to be too small to be economically viable, and the capacity was revised upwards to 320,000 BBL/d. The estimated cost of such a refinery is currently about $600 million.

The Barmer refinery project has been further hampered by the fact that ONGC had intended to use the crude oil from the Cairn oil fields, which was later discovered to be of the waxy variety and was unsuitable for the proposed refinery. In addition, the Cairn oil fields are only expected to have a life expectancy of about seven years with a maximum output of approximately 175,000 barrels per day.

ONGC had attempted to obtain subsidies from the Rajasthan government, but reports indicate that the state government has declined to subsidize the project. With other refineries in the area either in operation or under way such as the 580,000-BBL/d operational unit of Reliance Industries Limited (BSE:500325) (Mumbai) and the 680,000-BBL/d unit of Essar Oil Limited (BSE:500134) (Jamnagar, Gujarat) scheduled to come online in December 2010, the region has adequate refining capacity in the current climate of reduced demand.

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