India's IOC Makes Progress on Panipat and Paradip Greenfield Refinery Upgrade Projects

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Researched by Industrial Info Resources (Sugar Land, Texas)--Indian Oil Corporation Limited (BSE:530965) (IOC) (Mumbai) is making progress with refinery projects at Panipat in Haryana and Paradip in Orissa. In Haryana, IOC is augmenting the capacity of refineries at Panipat by 3 million tons per year, with an investment of more than $206 million. In Orissa, the firm is setting up a 15 million-ton-per-year greenfield refinery with an investment of nearly $6.1 billion.

As part of the expansion program at Panipat, IOC plans to commission the sulfur recovery and diesel hydrotreating (DHDT) units by December in order to comply with the Indian government's Auto Fuel policy. The balance facilities, such as the crude distillation unit and vacuum distillation unit, are scheduled for commissioning by August 2010.

For the refinery project at Paradip, IOC has selected Praxair Incorporated (NYSE:PX) (Danbury, Connecticut) for setting up nitrogen and hydrogen plants at the facility on a build-own-operate basis. Approval of the contract is under way. IOC also has selected Infrastructure Leasing & Financial Services Limited (Mumbai) for developing the raw water intake facility. Although IOC has yet to decide whether the contract will be executed on a build-own-operate-transfer basis, it expects to finalize the awarding of the contract by the end of the month. The firm also has received bids for the development of fired heaters and recycle-gas compressors of the DHDT and vacuum gas-oil hydrotreating units, and is in the process of evaluating the offers received. The company has received expressions of interest from eight bidders for setting up the coker-heater unit of the DCU.

IOC had entered into a joint venture agreement with Tata Power Company Limited (BSE:500400) (Mumbai) for establishing a 1,000-MW coal-based captive power plant for the Paradip refinery. However, the deal fell through with IOC uncertain whether the venture would be able to meet the deadline of delivering power to the facility by March 2012. Although the venture agreement was signed in December 2008, the two firms could not proceed with land acquisition activities, nor could they seek environmental clearance approvals due to the general elections. Tata Power is also setting up a 1,000-MW thermal power plant at Naraj in Cuttack district, in the vicinity of the refinery, which led IOC to doubt Tata Power's commitment to the captive power project. Furthermore, Tata Power ruled out the possibility of developing the captive power plant as an independent power project.

As of July, the Paradip refinery project recorded a progress of 9.26% against the target of 10.25%. The project is scheduled for completion by July 2012, and operational stability is expected to be achieved by November 2012.

In another report, IOC reportedly has exceeded its cumulative budgeted expenditure on various refinery projects by 86% for the current fiscal year as of July 2009, with overspending incurred on eight of the firm's nine refinery projects. The firm's refineries division incurred an expenditure of more than $134 million against the cumulative budget of $72.2 million in the present fiscal year up to July. IOC's $1.2 billion upgrade project at the refinery in Gujarat was the worst hit in terms of actual surplus expenditure. IOC, which is upgrading the quality of motor spirit, high-speed diesel and residue produced by the refinery, incurred an actual expenditure of more than $287 million against a budgeted estimate of nearly $115 million, recording a surplus investment of 149% during the April to July 2009 period. A similar upgrade program being implemented at the firm's refinery at Haldia in West Bengal saw an expense of $81.1 million against a budget of $45.69 million, a surplus of 77.57% up to July. The overall cost of the project is estimated at nearly $587 million. The only project that did not see a cost overrun was the Paradip refinery project, in which actual expenses up to July amounted to $14.83 million against the budgeted estimate of $45.92 million.

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