India’s high dependence on crude imports is well known. However, the country is among the key exporters of refined petroleum products globally. With domestic crude oil production at 900,000 barrels per day (bpd), far less than the refinery capacity of 4.6 million barrels per day (mbpd), it has a significant surplus of refined products, according to the International Energy Agency (IEA). Thus, it is a net exporter of almost all categories of refined petroleum products, except liquefied petroleum gas (LPG).
Exports to economies in Europe, the Asia- Pacific and the Middle East earn the country substantial foreign exchange. However, now with Middle Eastern countries ramping up their refining capacity, export competition is expected to intensify. This has led India to embark on enhancing its domestic crude refining capacity, in order to retain its export markets. One of the key projects towards achieving this is the 60 million tonne per annum (mtpa) Ratnagiri project planned to be set up in Maharashtra. The project is slated for execution by state-run refiners Indian Oil Corporation Limited (IOCL), Hindustan Petroleum Corporation Limited (HPCL) and Bharat Petroleum Corporation Limited (BPCL) along with Engineers India Limited.
Indian Infrastructure presents an account of recent project-related developments…
Refineries in India
Currently, India has 22 major refineries in operation with a total installed capacity of about 4.6 mbpd (as of April 2016). IOCL is the largest refining company, and along with its subsidiary, Chennai Petroleum Corporation Limited, it operates 35 per cent of India’s refining capacity. Considering the ownership split, the public sector accounts for 66 per cent of total capacity, while private refiners such as Reliance Industries Limited (RIL) and Essar Oil Limited hold the remaining 34 per cent. In fact, the share of private firms in total installed refining capacity has been declining in recent years.
Although India is now the second largest refiner in Asia (after China), with the fourth largest refining capacity in the world with only the US, China and Russia ahead of it, it has been unable to meet the increasing domestic oil demand. According to IEA projections, India’s reliance on oil imports will rise by 90 per cent over the current level by 2040, when crude im-
ports will rise to 7.2 mbpd, second only to China. Besides crude, the country also imports some petroleum products (especially LPG). To reduce import dependence, Indian refiners are planning to invest over $30 billion in additional refining projects in the next five years.
The 60 mtpa Ratnagiri refinery and mega petrochemical complex is one such project being set up to help ramp up India’s refining capacity. The project will be set up in two phases. The first phase of the project will have a capacity of 40 million tonnes (mt) together with an aromatic, naphtha cracker and polymer complex. Costing around Rs 1.5 trillion, it is expected to come up in five-six years from the date of land acquisition. The second phase of the project with 20 mt of capacity will cost around Rs 600 billion. Once complete, the whole facility will comprise three crude units of 20 mt capacity each. The mega complex will require approximately 15,000 acres of land and the refinery will produce petrol, diesel, LPG, aviation turbine fuel and feedstock for petrochemical plants in plastic, chemical and textile industries in the state.
According to the Ministry of Petroleum and Natural Gas (MoPNG), construction will begin in March 2017 and the project will take around a decade to complete.
Location and size
The western coast of the country has been strategically chosen for the refinery. IOCL has for long been interested in setting up a facility on this coast, so as to meet demand from the huge consumer base in the western and southern regions. This is currently difficult with its refineries mostly located in north India. HPCL and BPCL have also been looking at a bigger refining facility because of constraints faced at their Mumbai units. After the decision of setting up the refinery on the western coast was taken, the Maharashtra government evinced interest in joining the project. The MoPNG conveyed to the state government that 15,000 acres was needed for the mega project and state-run Maharashtra Industrial Development Corporation (MIDC) identified the requisite land in Guhagar taluka of Ratnagiri district. Most of the land is barren, while some part is being farmed. MIDC is expected to complete the land acquisition and hand it over to the special purpose vehicle (SPV).
Considering the price per acre of Rs 1 million, the SPV’s outgo towards land acquisition is expected to be Rs 15 billion. Representatives of the state oil marketing companies (OMCs) and Engineers India Limited have visited the project site and have carried out the preliminary survey.
The new facility will rival RIL’s Jamnagar refinery in scale as well as capacity. RIL holds the distinction of building the biggest refinery in India – its first refinery at Jamnagar in Gujarat had a capacity of 27 mt, which was subsequently expanded to 33 mt. It has built another 29 mt unit adjacent to it for exports of refined products. The first phase of the Ratnagiri project will itself be bigger than any single unit of the Jamnagar refinery.
Equity holding structure
The Ratnagiri refinery project is being developed by an SPV formed by OMCs IOCL, HPCL and BPCL which may jointly hold 51 per cent of the share. The Maharashtra government may also be an equity partner and hold up to a 5 per cent stake, with the rest going to a strategic investor. It will have a planned capacity of 1.2 mbpd. The government has appointed Engineers India Limited as the technical agency to prepare a detailed feasibility report.
The mega-refinery and petrochemical complex has been facing land acquisition issues. Planned to be set up in the coastal area in the Konkan region of the state, the project is being jeopardised by opposition from activists. The activists have also been opposing the Jaitapur nuclear project in Ratnagiri district which was planned to be set up at Tavsal village, 100 km away from Jaitapur. At Tavsal, HPCL had also tried to acquire land in 2012 for a much smaller refinery, but due to stiff resistance from locals, the company had to shift the project to Barmer, Rajasthan. In light of the opposition, the Maharashtra government wants the three oil companies and the MoPNG to reduce the land requirement for the refinery.
The enhancement of crude refining capacity in the country has assumed greater importance, given expanding capacities in strategically located areas such as the Middle East, which could give India serious competition in international markets. Besides this, there is the growing demand for petroleum products in the domestic market as well. However, the plan to ramp up refining capacity rests on the successful development of associated infrastructure (pipelines, terminals, etc.), without which much of the potential benefit will not be realised.