Third time lucky? After 2 false starts, Barmer waits for refinery again

Will it be third time lucky for Barmer? This is the question that is floating around as Prime Minister Narendra Modi on Tuesday kicked off the commencement of work for the Rs 431-billion petroleum refinery at this city in Rajasthan.

The joint venture between state-run Hindustan Petroleum Corporation (HPCL) and the government of Rajasthan will be the first refinery in the country to completely produce Bharat Stage VI (Euro 6) compliant fuel when it commences work by 2022. The project is expected to bring in an overall investment of around Rs 700-800 billion in the region. However, this is not the first time that the refinery plan is being floated by the government. 

It was way back in 2009, that state-run Oil and Natural Gas Corporation (ONGC) had also proposed to set up a refinery there, but it shelved it later citing viability concerns. Later on September 22, 2013, a few weeks away from election notification in the state, the then UPA chairperson Sonia Gandhi laid the foundation stone for the refinery by HPCL. With the Rajasthan voting to power a BJP government followed by the NDA taking charge at the Centre, the refinery needed a fresh look.

“With state elections set to come in a year’s time, I feel this too is a political stunt to garner votes.  Because being a hinterland refinery, availability of water still remains an issue and there are questions regarding viability too,” said an industry source.

It was in January 2004 that Barmer rose to prominence after Cairn Energy struck oil in the Mangala field—the largest onshore oil discovery in India in more than 20 years. Old-timers in ONGC remember that the concept of a refinery close to oil wells was first mooted by their former chairman Subir Raha. ONGC holds 30 per cent participating interest in the RJ-ON-90/1 block in Barmer, while Cairn India holds the remaining 70 per cent.

“At that time, the production profile of Cairn itself was around six years.  Moreover, the state government was not ready to extend any fiscal incentives. The study conducted by SBI Caps also indicated that the return of capital was going to be only slightly above 1 per cent,” said a former ONGC official.

The current 9 million tonne Barmer project is part of a larger refinery expansion plan by HPCL which includes expanding Vizag refinery from 8.3 MT to 15 MT and Mumbai from 7.5-9.5 MT. “For Barmer, the government approval already in place and a land deal has been signed.  Unlike in 2013, now the Rajasthan government is set to save at least Rs 400 billion from the revised viability gap funding for the Barmer refinery project,” petroleum minister Dharmendra Pradhan said last week.  

Pradhan claimed that the earlier agreement by the Congress government was bringing a huge loss to Rajasthan. The internal rate of return from the project was around 6 per cent before with a viability gap funding of Rs 37 billion per year from the state government for 15 years. Now, the rate of returns for the revised project comes to the tune of around 12 per cent with an annual support of Rs 11 billion by the state. The petroleum ministry also adds that this time the availability of water has also been addressed through sourcing from Indira Gandhi Canal and that of crude oil imports also being managed through a Rs 25 billion planned pipeline from the Gujarat coast.  "The pipeline project is vital as Cairn India production may come down in a few years," the former ONGC official added. 

• Project Cost – Rs.431.29 billion
• Target Mechanical Completion – 4 years
• Refining Capacity - 9 MMTPA
• Equity share of HPCL – 74%
• Equity share of GOR – 26%
• Location – Pachpadra, Barmer, Rajasthan
• Incentive – Interest-free loan of Rs 11.23 billion per annum for 15 years from date of commissioning to be refunded after 15 years