The Strategist

India to cut oil refining

08/08/2019 - 12:10

India intends to reduce capacity of the new largest oil refinery, as the country needs to lower spending. The need to comply with stringent environmental measures when acquiring land resulted in an increase in total costs to $ 60 billion from $ 44 billion.

India, together with the state-owned oil companies of Saudi Arabia and the UAE, plans to build a giant refinery in the state of Maharashtra on the west coast of India.

Last June, Saudi Aramco and the Abu Dhabi National Oil Company (ADNOC) signed an agreement and memorandum of understanding with a consortium of Indian national oil companies to take part in the mega-project. Saudi Aramco and ADNOC will jointly own 50% of the new RRPCL joint venture. The remaining 50% will be owned by a consortium of Indian companies. The parties intend to establish a strategic partnership and carry out joint investment in the development of a megaproject of an oil refinery worth $ 44 billion.

By investing in the giant Indian oil refinery, national oil companies from leading OPEC, Saudi Arabia and UAE producers will be able to produce oil in the strategically important fast-growing oil market in Asia.

However, countries must abide by strict environmental standards by abandoning the production of petroleum coke, producing fuels that comply with stringent environmental standards. This means that the plant must use the best of its technology, which is always more expensive than usual, said the representative of India.

Costs may increase due to land acquisition costs, and also due to the fact that the purchase of land for the plant was suspended at the end of last year amid confrontation from local farmers. The farmers opposed the former site for the giant oil refinery, as many of them depend on this land, necessary for income and livelihoods. As a result, the site had to be moved.

The issue of financing and a potential reduction in the plant’s capacity will also depend on how much the Indian government and companies in the Middle East are willing to overpay compared to the initial cost estimates.

The consortium hired Engineers India Ltd (EIL), which is due to prepare a cost analysis by September, an official said.