Vol 2, PW 26 (20 Jan 99) Midstream & Downstream

Off course, any change in refinery policy will have come too late for Shell, which late last year withdrew from a refinery project in Uttar Pradesh.

Shell's disillusionment underlines the conviction of oil majors like Caltex, Mobil, Saudi Aramco, Conoco and Total, that setting up a refinery in India does not make economic sense. Several reason explain the disillusionment: deregulation of the hydrocarbon industry in India is too slow; the capital cost of a refinery is too high; margins on refinery products are wafer thin; and surplus refining capacity in Asia.

That said, in September 1995, Shell Overseas Development did apply to the Foreign Investment Promotion Board for approval to set up a 7m t/y grassroots refinery in the district of Sultanpur in Uttar Pradesh, in a joint venture with Bharat Petroleum Corporation. Vikram Mehta, Shells India representative, tells a correspondent for this report the government failed to meet the four conditions stipulated in the agreement:- (1) Shell was to be accorded marketing rights under its brand name and Bharat Shell was to be allowed to establish a network of Shell branded retail outlets (2) The bottom end refinery residues were to be absorbed by a power plant to be set up adjacent to the refinery (3) Environmental clearances would be accorded (4) The stand alone refinery would be economically feasible.

Shell claims it has only been allowed to upgrade 12 existing Bharat Petroleum retail pumps into demonstration retail outlets. It admits the government has accorded marketing rights to any company that invests up to Rs 2,000 crore in a refinery but claims the government has not defined exactly what it means by "marketing rights".

Shell adds that no private promoter appeared willing to set up a power plant. Finally, studies commissioned by Shell shown that a stand alone refinery is not feasible.