The world’s largest oil company, Saudi Aramco, is likely to step in as the new joint venture partner in one of India’s largest oil and gas projects: the over Rs 50,000-crore refinery-cum-petrochemical project at Visakhapatnam in Andhra Pradesh. The project is currently being set up as a five-way alliance between Hindustan Petroleum Corporation Ltd (HPCL), GAIL, Oil India Ltd (OIL), French energy giant Total and steel czar LN Mittal.
When contacted, HPCL CMD Arun Balakrishnan confirmed that Saudi Aramco has shown interest in the Vizag project. “Talks are on to bring in Saudi Aramco as a strategic partner in this project, which will cost anywhere between Rs 45,000 crore and Rs 50,000 crore. Saudi Aramco’s presence will ensure crude oil supplies to the project. We are waiting to hear from them,” he said.
Asked about the extent of equity stake being offered to Saudi Aramco, Balakrishnan said, “We have had no discussions on this front. But anywhere up to 15% would be offered.” Saudi Aramco president & CEO Abdallah S Jum’ah is in New Delhi on Wednesday and is expected to meet the heads of domestic oil and gas companies, including Mukesh Ambani of Reliance Industries Ltd. However, Balakrishnan said no talks are being held on the Vizag refinery during the week.
Sources close to the project revealed that an exit by one of the existing JV partners was also on the cards as a fallout of the current global recession. While it could not be confirmed, a senior official of one of the joint venture partners indicated that Mittal would be taking a final decision on being part of the Vizag project over the next three to four months.
Mittal Investment Sarl, which holds the Mittal family’s interests in ArcelorMittal, had signed an MoU with Total, GAIL, HPCL and OIL in October last year to look into the feasibility of the Vizag project. However, Mittal’s flagship company, steelmaker ArcelorMittal, is now feeling the impact of the global slowdown and has announced several downsizing measures, including temporary output cuts of 35%, a pause in its growth strategy, staff decreases and a reduction in debt.
When asked to comment on the possible exit by one of the existing partners, Balakrsihnan said, “This is a huge project. The ongoing global slowdown may have forced some of the existing partners to rethink. For our part, HPCL is committed to the project and so is GAIL and OIL. We have already completed the Phase-I feasibility study and have to go ahead with the next phase, which will cost around Rs 1,000 crore. We are in touch with the joint venture partners on sharing this cost.”
The project comprises a roughly 15-million-tonne-a-year refinery, along with a petrochemical plant. While the refinery would be built to process sour and heavy crudes, which are cheaper than low-sulphur sweat crude, the petrochemical plant may use the naphtha produced in the refinery as feedstock. Details of the project cost and structure, along with the refinery configuration, are being readied, said Balakrishnan, adding that the equity structure was yet to be decided.
“The joint venture company will certainly not be in the public sector domain. The equity will be structured so that the share of public sector companies is below 50%. We are yet to work out these details,” he said.
Total is leading the project feasibility and demand studies, while GAIL is overseeing a study of the petrochemical unit. About 2,500 acre of land near HPCL’s existing 7.5-mtpa refinery at Vizag has been acquired for the project.
Saudi Aramco meets 10% of the world’s oil demand. In 2004, HPCL had evinced interest in participating in Saudi Aramco’s 400,000-barrel-a-day, export-oriented refinery in the Red Sea port of Yanbu, but Riyadh turned down the offer.
At a recent industry summit in Beijing, Saudi Aramco said it anticipated a further drop in crude oil prices which, it said, may curtail investments needed to offset declining output in aging fields.