The operator of India’s newest refinery, Essar Oil Ltd, plans to raise $4 billion (Rs15,840 crore), half of it overseas, to more than triple capacity at the facility.

The funding plan will be completed next month, managing director Naresh Nayyar said. Shareholders voted on Tuesday to sell $2 billion of shares to the group, controlled by billionaires Shashi and Ravi Ruia, to fund the remainder of the Gujarat-based plant.

“By mid-2009, we should have in hand all the equipment needed to run the refinery at full scale," Nayyar said, without clarifying whether Essar Oil will sell bonds or obtain loans. “We’ve already placed orders for all critical items."

Essar Oil needs the funds to compete with Reliance Industries Ltd (RIL), which is using record profits to build the world’s biggest refinery complex. The Indian refiners are reliant on exports because state-set retail prices make it impossible to profit from selling petrol, diesel and heating oil at home.

“It will be hugely ambitious to grow as big as that by 2010," said Tony Regan, energy consultant at Nexant Inc. in Singapore. “From 2009, we’ll see significant volumes coming up, mostly from Reliance, also, there will be the perception that a lot more is around the corner. So, we’re expecting refining margins to come off quite sharply."

Construction by Essar Oil, RIL and Indian Oil Corp. Ltd (IOC) will increase India’s ability to process crude by 92 million tonnes (mt) a year by 2012 from 149mt now, boosting exports, Dinsha Patel, minister of state for petroleum and natural gas, had said in August. India had a surplus of 20.1mt of fuels in the year ended 31 March, of which diesel accounted for more than half. “We were aware of the tightness in the equipment market thanks to all the expansion plans by Asian refiners," Nayyar said. Essar has ordered all equipment that it needs up to 24?months?for?delivery, he?said.

The Mumbai-based group has about $2 billion of debt outstanding, Nayyar said.

Capacity at Essar Oil’s western India-based refinery will increase to 34mt a year, or 680,000 barrels per day (bpd), from 10.5mt now.

Thinking ahead: Essar Group’s Shashi (left) and Ravi Ruia.

Reliance Petroleum Ltd, a unit of RIL, is building a 580,000 bpd refinery adjacent to a 660,000 bpd plant owned by its parent. The plant is expected to be ready next year. IOC, the nation’s biggest state-run refiner, and third ranked Bharat Petroleum Corp. Ltd are also planning expansions.

Essar has placed orders to buy heavier varieties of crude oil from West Asia, Nayyar said without elaborating. The company also plans to buy sour crude varieties from Mexico, Brazil and Venezuela.

“Our goal is to process 1 million barrels crude a day, of which 700,000 barrels a day will be processed in Jamnagar," Nayyar said. The company plans to build or buy overseas refining capacity of up to 250,000 bpd.

Essar plans to sell 80% of the fuels processed at its refinery in overseas markets. The company plans to market petrol and diesel from its Jamnagar refinery in South-East Asia, including China and West Asia, he said, without elaborating.

“Though the demand isn’t huge now, marketing in east African countries will make economic sense for us," Nayyar said. Essar is looking to buy stake in fuel retailing companies in African countries such as Kenya, Tanzania and Nairobi, he added.

However, Nayyar declined comment on reports that the company is planning to buy a 50% stake in a Kenyan refinery. Essar plans to buy a 50% stake currently owned by Chevron Corp., Royal Dutch Shell Plc. and BP Plc., PTI had reported on 10 December.