IOC has made this offer in response to a proposal made by The Energy Research Institute (Teri), to the Saarc secretariat in Kathmandu, that a 23 million tonne per annum grass root refinery be set up specifically to meet the regions demand for petroleum products. Teri had estimated the cost of this new regional refinery at over $8 billion. To get an idea of petroleum products imported every year by the Saarc nations, it may be noted here that the foreign exchange outgo on diesel imports alone is a whopping $14 billion plus. Instead of setting up of a new refinery (estimated to cost over $8 billion), IOC said the demand for products can be met by suitably expanding the capacities of some of its existing refineries. Officials said the Saarc nations would be meeting to discuss the proposal soon.
IOC, along with its subsidiaries, own 10 refineries in India with a capacity close to 67 million tonne. IOC is also in the process of implementing a 15 mtpa refinery project at Paradip, in Orissa. With some other expansions at hand, IOC will have a refining capacity between 90-95 mtpa by 2012.
According to IOC, its refineries are strategically located with proximity to the Saarc countries (except Afghanistan) and therefore, suit the logistics cost requirement of supplying products. Saarc nations are spread out from Nepal, Bhutan and Bangladesh in the north-east and eastern part of India and Sri Lanka and Maldives in the south to Pakistan and Afghanistan on the north-west part of India.
In case other countries accept long term tie-up with IOC for the supply of petroleum products, IOC can suitably expand the capacity of some of its existing refineries to meet their (Saarc nations) requirement on mutually agreed terms based on international prices,IOC has written to the petroleum ministry.
According to Teris study, countries like Bhutan, Maldives, Nepal and Afghanistan are nearly 100% import dependent while Sri Lanka imports about 50% of its petroleum product demand. Bangladesh, India and Pakistan are largely dependent on imported crude oil to meet their petroleum product requirement.
However, Bangladesh, Sri Lanka and Pakistan have limited refining capacity and therefore are dependent on import of petroleum products to meet their energy demand. Although India, on an aggregate, has a surplus refining capacity, it is still not sufficient to meet the demand of all its petroleum products. It therefore, imports some quantity of select petroleum products such as LPG. The demand for petroleum products in the future is expected to increase further. Teri says the demand for petroleum products in the region (in a 10 year time frame 2005-2010) is expected to grow at a CAGR of 3.08% from 132 million tonne of oil equivalent to 153 mtoe, with Maldives registering the highest growth of around 22.17%, followed by Sri Lanka at 12.09% and Pakistan at 11,96%. Teri had accordingly proposed that considering the current dominance of diesel in energy consumption profile of the region, the new 23 mtpa regional refinery be configured so as to maximise diesel production. Teri had also suggested that the new refinery have 65% of its products output as diesel, 15% petrol, 3% LPG, 10% naphtha and 5% petroleum coke.
Commenting on the product pattern proposed by Teri for this new regional refinery, IOC said that except for diesel, which has a demand growth in the region, the evacuation of other products specially naphtha and pet coke has not been addressed by Teri. These products probably would have to be exported to the countries outside the Saarc region, thus reducing the refinery margin due to additional freight/discounts,IOC said. IOC also said that the proposed refinery or a spread of two to three refineries (at different coastal locations) would also impact the environment in terms of emissions of green house gases.
Listing the benefits of setting up a new refinery, with participation by member nations, Teri said this would accrue huge savings on outflow of foreign exchange. Besides, most of the refineries in the region are old and require upgrading in order to increase output. The refining capacity in three of the four member states has remained constant over the past few years. Pakistan has added only one mmtpa of refining capacity since 2001, and both Bangladesh and Sri Lanka have one refinery each, with a refining capacity of 1.5 mmtpa and 1.2 mmtpa respectively. India alone has been augmenting its refining capacity regularly.