India’s state-run ONGC and BPCL, which are setting up refineries on the country’s west and east coasts, respectively, in joint venture with Saudi Aramco, may commit to buying at least 50% of the crude to be processed at these facilities from the West Asian kingdom, sources familiar with the matter told FE.
Saudi Aramco is likely to pick up 20% stakes each in the new refineries.
Strategic Partnership for Committed Crude Supply
India has already indicated that the two refineries would procure at least 50% of its crude requirement from Saudi Arabia for the next 15-20 years, the sources said. From India’s perspective, committed supply of crude to the two refineries is essential, given global uncertainties and potential supply disruptions.
Boosting India’s Refining Capacity and Global Ties
Though the details are still being worked out, Aramco’s initial investment in both units could be around Rs 24,000 crore (around $2.8 billion at the current exchange rate), including a debt component commensurate with the equity, sources said. The investments could later be jacked up to $5 billion as Aramco is likely to increase its debt exposure in these two new units.
The two refining facilities, each with a capacity to process 12 million tonnes of crude annually, will be set up at a cost of roughly Rs 1 lakh crore each.
However, Saudi Arabia has not accepted the demand by the Indian side for a waiver of the Asian premium on crude imports. Asian premium is the effective high price that Asian countries such as India and China pay to import crude from Oil Producing and Exporting Countries (OPEC), sources said. The Indian side also pitched for a fixed price for the crude imports, which has not been agreed to yet.
The in-principle agreement was arrived at between the two countries to set up the refineries in India during prime minister Narendra Modi’s visit to Riyadh on April 23.
Saudi Arab has been a reliable and stable oil supplier for India, even though its share in India’s total oil imports has come down to around 14% from 20% due to a rise in imports from Russia in the last couple of years. All such imports are currently subjected to Asian premium.
Aramco has been one of the major exporters of crude into the country for decades, and downstream investments in the country are seen to cement the ties.
ONGC, in partnership with Aramco, plans to set up a refinery in Gujarat, while BPCL will set up the refinery in Andhra Pradesh.
Senior government officials described Aramco’s willingness to invest in the ventures as a “big milestone” as India aims to set up a chain of new oil refineries and emerge as the leader in Asia in this line of business.
Besides investment, Aramco will bring the best technical know-how in refining and commitment to stable oil supplies to the refineries given their stake in the new ventures.
ONGC share price closed at Rs 243.9 on the BSE on Thursday, up 0.41% from the previous closing price. BPCL share prices closed down 0.23% at Rs 346.85.