Bangalore: After putting up India’s first container transshipment terminal with a private partner, Union government-owned Cochin port in Kerala has started work on setting up a 20 million tonne export-oriented oil refinery and oil trading hub with private funds as part of an ambitious deepwater outer harbour project.

“The oil refinery involves an investment of around 40,000 crore," Cochin port chairman Paul Antony said in an interview. “The Cochin outer harbour project will be the biggest project in the state. The port has called for an expression of interest to build the oil refinery and oil trading hub."

For any oil refinery to succeed, the revenue should justify the project costs, said a Chennai-based port consultant. “The revenue is dependent on the price of the product. The price of oil in this country is regulated by the government. The refiner cannot charge his own prices," he said, asking not to be named because his firm advises some government-owned ports. “The real issue here is whether the investment would pay back because your end price is regulated."

The outer harbour project involves constructing two breakwaters on both sides of the approach channel extending about 7km into the sea, with associated land masses on either side. The two breakwaters are estimated to cost around 3,000 crore. A breakwater is an offshore structure constructed to protect a harbour, anchorage or a marina basin from waves.

The outer harbour will also have an oil rig fabrication facility, free trade warehousing zone and a power plant.

The port is planning for a water depth of 16 metres in the outer harbour so large petroleum product tankers with a capacity to load 130,000 tonne can dock.

“But we could go deeper," Antony said.

Cochin currently can accommodate ships with a draft of 14.5 metres.

With the outer harbour in place, siltation for both the inner and outer harbours of the port will be reduced drastically by 40% to 12 million cubic metres, from the 21 million cubic metres (the volume of materials dredged from the sea bed) for the inner harbour now. “With this, the viability issues of the port will be solved for all times to come," Antony said, adding that a lower dredging bill will make Cochin port less expensive for ships to call.

Vessel-related charges at Cochin port are currently high compared with other ports in India because the port recovers the cost of maintaining the channel from the ships calling there.

Cochin port spent 124 crore on maintenance dredging in the year ended March. This year, the dredging bill is expected to be higher because of fuel price escalation.

Cochin funds maintenance dredging from its internal resources.

In comparison, Kolkata port spends about 350 crore on maintenance dredging but this is fully funded by the Union government as a grant, resulting in lower vessel-related charges at Kolkata, Antony said.

Besides, the outer harbour development is environment-friendly.

Coastal erosion is a major problem in and around Fort Cochin. “Technical studies have shown that the breakwaters will stop coastal erosion. In fact, in 10 years, the Fort Cochin coastline is expected to add 50 to 100 metres while the Puthuvypeen coastline breakwater is expected to gain 100 to 200 metres additionally. There are no eviction and rehabilitation issues, and the entire reclamation is envisaged to be carried out by dredging," Antony said.

The Indian Navy has offered to co-partner Cochin port in the project, and has secured a no-objection certificate from the port for developing around 650 acres of land and about 4,000 metres of berth along the southern breakwater off Fort Cochin.

“This development will help strengthen the Indian naval presence in the Indian Ocean," Antony said.

Around 2,600 acres can be reclaimed along the northern breakwater.

The oil refinery and the oil-trading hub will be a part of the port-based Special Economic Zone and Free Trade and Warehousing Zone that gives investors a wide range of fiscal benefits.

The planned oil refinery will be able to process a wide variety of crudes, which will enable the refiner to trawl the market seeking crude varieties that are cheap in relation to the products they yield, the port chairman added.

“An oil refinery located in a port has many intrinsic advantages," said a Mumbai-based executive looking after infrastructure at one of the big four global consulting firms. “However, given the current market and regulatory environment, whether it would justify the huge investment involved for setting up a refinery has to be examined in detail," he said, requesting anonymity.

Besides containers, Cochin has facilities to handle liquefied natural gas, liquefied petroleum gas, crude oil and petroleum products.