IOC rejects partnership offer for proposed Barmer refinery

Indian Oil Corp (IOC) has turned down an offer to partner in the proposed Barmer refinery in Rajasthan due to financial constraints, Minister of State for Petroleum and Natural Gas Jitin Prasada said today.

State-owned Oil and Natural Gas Corp (ONGC) is in consultations with the Rajasthan government on the feasibility of the refinery, he said in a written reply to a question in the Rajya Sabha.

"IOC has regretted its participation as equity partner in the proposed Barmer refinery due to the financial constraints faced by the corporation," he said.

Originally proposed in 2004-05, the project was declared economically unviable after the previous Vasundhara Raje government in Rajasthan did not agree to give fiscal incentive like interest free loan and sales tax exemption for the products to be produced at the 15 million tonnes a year unit.

After Rajasthan Chief Minister Ashok Gehlot renewed the demand of setting up refinery project in the state last year, ONGC decided to do a feasibility study again considering the fiscal concession that the state government was willing to extend to the project.

"The Government of Rajasthan has not yet firmed up its nature of assistance for establishing refinery in Barmer," Prasada said.

The refinery was proposed to turn the crude oil produced by Cairn India from its Barmer fields into products. However, considering the fact that the peak oil production from the Cairn's Barmer field, where ONGC has 30 per cent stake, was only 8.75 million tonnes, which may last a maximum of seven years, the refinery was considered unviable.

Also the economic scenario had undergone a sea-change since the project was first proposed with fuel demand expanding at a slower pace. India already has surplus refining capacity, meaning more fuel is produced that can be consumed in the country, that makes a new refinery addition unviable.