The government and private firms in the business want to make India a regional refining hub and, to this end, hope to increase the country’s refining capacity by 62% to around 241 million tonnes per annum (mtpa) by 2012. Among the refineries in the pipeline are Reliance Industries Limited’s new Jamnagar one, BPCL’s one at Bina and HPCL’s one at Bhatinda. India’s current refining capacity is around 149mtpa.
Experts said plans to increase refining capacity should be seen in the context of India’s geographical location. “While there is a market for the petroleum products in the east, the crude supplies are in the west. India is located between the two,” said Ravi Mahajan, partner at accounting firm Ernst & Young.
India will add 9.73mt of refining capacity in 2007-08, 36mt in 2008-09, 15.5 in 2009-10, 15.7 in 2010-11 and 15mt in 2011-12, according to a senior official at the ministry of petroleum and natural gas who did not wish to be identified.
Adding this quantum of refining capacity will require substantial investment and the government owned public sector oil refiners alone will invest Rs81,545 crore over the next five years to enhance capacity. The government expects surplus capacity to result in a decrease in the price of petroleum products. However, most refiners could choose to export their output. This will also insulate them from any rise in the price of crude.
Currently, public sector oil-marketing companies have a dominant share of the petroleum products retailing business in the country and the government decides the price of the products sold by them. Private sector firms such as RIL have worked around this by going slow on the roll-out of their domestic petroleum retailing business and focusing on exports.
“RIL’s example has shown how additional capacity can be very efficiently utilized by exporting the surplus,” added E&Y’s Mahajan.
Although India doesn’t produce enough crude, it has emerged a cost-effective base for adding value (or refining) imported crude. In 2005-06 (the latest year for which such data is available), India imported crude worth Rs1,71,702 crore and added Rs29,200 crore of value to this.
Experts expect the addition of refining capacity to be accompanied by other benefits. Refineries are capital-intensive projects and generate employment. They also contribute to tax collections in the states where they are based.