Hindustan Petroleum Corporation Ltd (HPCL) will shortly approach the market to raise Rs. 270 billion in debt for its 9 million tons per annum (mtpa) Rajasthan refinery, two people aware of the development said. HPCL and the Rajasthan government which own 75% and 25%, respectively, in the joint venture—HPCL Rajasthan Refinery Ltd—will bring in the balance equity component of the Rs. 431.29 billion project. “Preliminary work on the refinery has begun. HPCL will be hitting the market to raise funds for the venture in two-three months. The firm plans to raise Rs. 270 billion through debt and the rest would be funded through equity,” said a banker aware of the development. He spoke on condition of anonymity as he is not allowed to speak to media.
On 18 April, HPCL and the state government had signed an agreement to build the refinery at Pachpadra in Barmer district. The refinery will be able to process local crude from Vedanta Ltd’s Barmer oil field, apart from imported crude oil. Of the 9 mtpa capacity, two mtpa will house the petrochemicals complex. The state has allotted 4,800 acres for the refinery, which was conceived in 2012-13.
HPCL did not reply to an email sent on Thursday.
“HPCL is in the process of seeking approvals from the government on the project. Once that is over, the fund-raising cycle will begin. The plan is to look at both domestic and international markets for funds,” said the second of the two persons quoted earlier. Oil minister Dharmendra Pradhan had on 18 April said the plan was to begin construction work in this fiscal and complete the refinery in the next four-five years. HPCL, India’s third largest state-run refiner, plans to operate more than 60 mtpa of refining capacity by 2030, the company had said at its September annual general meeting in Mumbai. The company’s total refining capacity at present is 24.8 mtpa.
Currently, HPCL is expanding capacity at its Mumbai refinery from 6.5 mtpa to 9.5 mtpa at a cost of Rs. 42 billion, and its Visakhapatnam refinery from 8.3 mtpa to 15 mtpa at a cost of Rs. 208 billion. HPCL-Mittal Energy Ltd (HMEL), a joint venture between HPCL and Mittal Energy Investments Pvt. Ltd, Singapore, also operates the 9 mtpa Guru Gobind Singh refinery at Bhatinda in Punjab. The company plans to raise its capacity to 18 mtpa and set up a petrochemical complex there in a few years. HPCL and Mittal Energy Investments hold a 49% stake each in the venture, with financial investors owning the rest. HPCL will also hold a 25% equity in a mega refinery planned in Maharashtra, a joint venture (JV) between Indian Oil Corp. Ltd, Bharat Petroleum Corporation and HPCL.
“Given the capital costs involved in stand-alone refineries, getting sponsors for such projects is very important. However, with HPCL being a state-run entity, they would get incentives. Also, new refining capacities make India surplus in petroleum products and we will have to export the products for some time till domestic demand catches up,” said K. Ravichandran, senior vice president and group head, corporate ratings, ICRA Ltd. India’s annual refining capacity today stands at 235 mtpa. Of this, 194 mtpa of products are consumed domestically. The country is in the process of increasing its refining capacity to around 310 mt by 2023 to become a refinery hub.