HPCL: Death knell sounds for Barmer refinery

Vol 18, PW 15 (26 Mar 15) Midstream & Downstream

Hindustan Petroleum should face reality and accept that its proposed 9m t/y oil refinery at Barmer in Rajasthan, which has been dropped and resurrected countless times, will never materialise.

Rajasthan chief minister Vasundhara Raje’s BJP government has again expressed reluctance to honour financial commitments made by the Congress government of former chief minister Ashok Gehlot, the project’s staunchest supporter. A four-member panel of two senior Rajasthan bureaucrats and two HPCL directors met on February 20 to review the project.

Also present were representatives from PwC which Rajasthan has hired to evaluate the project afresh. Sources say Rajasthan is highly unlikely to give the project an interest free loan of Rs3736cr ($600m) every year for 15 years, to be repaid over the subsequent 15 years, as promised by Gehlot.

Without this financial support, says a source familiar with the project, the Internal Rate of Return (IRR) of the project is an "unsustainable" 6.5% as, “cash flows (from product sales) are very low.” But if Rajasthan provides financial support the IRR will rise to a respectable 15%, as recommended by SBI Caps, the financial consultant to the Barmer refinery project.

Alarm bells are also ringing over the prospect that oil supplies from Cairn India’s Rajasthan fields could dwindle from the present 9m t/y to 2m t/y by the time the refinery is operational in 2020.