Will Barmer refinery boost HPCL's refining margins?

Moneycontrol Bureau

State-run Hindustan Petroleum has signed an agreement with Rajasthan government to build 9 million tonne per annum refinery-cum petrochemical complex in Barmer for Rs 37,230 crore.

The firm was keen to take up this project so that it can increase complexity in order to protect gross refining margins (GRMs) which are under pressure due to high crude oil prices and a volatile rupee. GRMs is the difference between the price of crude oil and value of refined petroleum products.

The company's average GRMs for the nine months ended December 2012 stood at USD 1.46 per barrel compared to GRMs of USD 2.17 year-on-year.

Meanwhile, the proposed refinery will process local crude available in Rajasthan along with various other categories of fuel. The complex shall also be designed to produce motor fuel with latest environmental specifications, stated the company in a press statement.

Though there is no clarity of how much stake it will hold in the project, newspapers suggest that the Rajasthan government may pick up 26 percent stake in the project and will provide requisite incentives to HPCL.

The complex will go on stream in around four years. HPCL already owns a refinery at Mumbai and Visakhapatnam and is equal partner in the just commissioned Bhatinda refinery in Punjab.

According to reports, Cairn India discovered oil in the Barmer basin in 2005 and since then the Rajasthan government was scouting for partners to take up the proposed refinery. First, ONGC was keen to take up this project but later backed out due to some differences with the Rajasthan government on various clauses.

Being a player in upstream segment, Cairn was also not keen to sign any agreement to develop a refinery. Later, HPCL finally agreed to set it up.