Oman Oil set to sign deal with Essar Oil for Vadinar refinery

Vol 3, PW 25 (19 Jan 00) Midstream & Downstream

If you cant set up a Greenfield refinery, buy into an existing project.

This appears the philosophy behind Oman Oil Companys decision to tie-up with Essar Oil. Petrowatch learns Oman Oil is close to clinching a deal to buy a 26% stake in Essars proposed 10.5m tones a year (t/y) refinery at Vadinar in Gujarat.

It is believed that Oman Oil hopes eventually to gain 100% control of Essar Oil, and is using the negotiations to acquire a 26% stake as a means to test the water. It is further learnt that Oman Oils board of directors was scheduled to hold a meeting on (Tuesday) 18th January to take a final decision on the proposal to buy into Essar Oil, at an approximate cost of $200m.

As Petrowatch goes to press, no details of this meeting have emerged. However, a source close to negotiations said the only outstanding issue to be resolved is the share price that Oman Oil will pay Essar.

Oman Oil sees buying the Essar refinery as a cheaper option to setting up a new refinery in India, he said. Quite so.

For five years, Oman Oil has fought a losing battle with red tape in Gujarat to set up a 6m t/y Greenfield refinery at Bina in Madhya Pradesh, in an alliance with Bharat Petroleum (BPCL). Even pressure from Prime Minister Vajpayee proved unsuccessful in overcoming the vested political and commercial interests pitted against the project.

Oman Oils decision to pursue a stake in Essar Oil is the surest indication yet that the company is admitting defeat on the Bina proposal. Further, BPCL has now announced it is no longer interested in acquiring a stake in Essar Oil.

Ashok Sinha, Director Finance, BPCL, is quoted as saying the companys interest in Essar has been put on the backburner.