India looking at cutting west coast refinery capacity as cost escalates to $60 billion

India is looking at cutting capacity at its biggest oil refinery to match lower fuel demand projections and contain costs which jumped to $ 60 billion due to meeting stringent environment norms and relocation of the plant, top officials said.

State-owned Indian Oil Corp (IOC), Bharat Petroleum Corp Ltd (BPCL) and Hindustan Petroleum Corp Ltd (HPCL) together with Saudi Aramco and Abu Dhabi National Oil Co (ADNOC) plan to set up a 60 million tonnes refinery-cum-petrochemical complex on Maharashtra coast.

The refinery was projected to cost $ 44 billion (about Rs 3.08 lakh crore) but meeting stringent environment norms such as not producing petroleum coke, and relocation of the plant has jacked up the cost to an estimated $ 60 billion (about Rs 4.2 lakh crore).

Supreme Court has mandated that you cannot sell petroleum coke and so to produce fuel without any such residue requires the use of best in class technology and will cost more. Also, the unit will now be set up in Raigad district as land acquisition at a previous site in Ratnagiri district was stalled due to farmer protests.

The consortium has engaged Engineers India Ltd (EIL) to do a cost study which should be out by next month, an official said. Also, a detailed feasibility report (DFR) is being prepared that will detail the cost. Simultaneously, demand assessment is being done keeping in mind the government push for moving away from petrol/diesel driven vehicles and adopting electric vehicles (EVs).

The refinery configuration would also depend on financing power of the companies involved. The three PSU firms can put in Rs 30,000 crore to Rs 40,000 crore as equity and equivalent money would come from Saudi Aramco and ADNOC as they own 50 per cent of the project. But the rest of the money will have to be financed from domestic sources or raised internationally, the official said.

The final call will have to be taken by the government. Can banks finance about Rs 3.5 lakh crore in just one project, is a question that still needs answer. The project will have to be approved by the Cabinet which will decide on how much financing can be put in one project.

Shekhar Ghosh is consulting editor, Indoasiancommodities.com. He has edited and written for publications like Business India, Business Standard, Business Today, Outlook and many other international publications. He can be reached at shekhar.ghosh@indoasiancommodities.in.

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