HPCL To Set Up Refining Capacity In Rajasthan

The state-owned Hindustan Petroleum Corporation (HPCL) has announced the setting up of a new refining capacity of 9 MTPA in Rajasthan. The proposed capacity will be completed by 2016-17 and will use the domestic as well as imported crude oil. The total capital outlay for this project is Rs 37230 crore which will be funded through HPCL and Rajasthan State Refinery. Besides, the London-based Vedanta Resources is also interested in taking up an equity stake in this venture, according to news reports. The state-owned ONGC had earlier committed setting up of a refinery in Rajasthan.

HPCL, however, is doing this expansion at a high cost. Last year, HPCL's own Bhatinda Refinery was completed at a cost of less than Rs 2400 crore per million tonne. At Rs 37230 crore, HPCL is spending Rs 4136 crore for 1 MTPA of refining capacity, making it the most expensive one in the country. Few other companies have also set up refineries at a cost of around Rs 2000 crore per million tonne.

HPCL's Rajasthan capacity will source domestic crude oil from Cairn India's Barmer Oil block. Cairn India currently produces 1.75 lakh barrels of oil per day (bpd) from these oilfields but has a potential of reaching a production output of 3 lakh bpd. Cairn India has increased the reserve estimations from these fields and has started drilling fresh wells in the field. The higher production from these fields will help HPCL in increasing the revenues when the capacity is commissioned.

HPCL currently has a total refining capacity of 24.5 MTPA and with the proposed Rajasthan capacity, its total refining capacity will touch 33.5 MTPA by 2016-17. The company has three refineries located in Mumbai (6.5 MTPA), Visakhapatnam (9 MTPA) and Bhatinda (9 MTPA). It is in the process of setting up another refinery of 9 MTPA capacity in Ratnagiri (Maharashtra) but that is delayed due to a host of approvals that are pending with the government. The Rajasthan refinery, therefore, would offset the delayed expansion and would prove to be good on the stock going ahead.