Rahul Dhir explains Cairn Indias position on pipeline

Vol 10, PW 17 (14 Dec 06) People & Policy

Anyone who still cherishes the hope that Cairn might be willing to invest in a refinery to process its Rajasthan crude should think again.

Rahul Dhir, Cairn India CEO, will have left no one in any doubt about the companys stand when addressing media in Delhi on 9th December ahead of the companys IPO this week. We are an exploration and production company, he said.

There are others who are more skilled at building refineries than us. Dhir hinted at several outstanding issues with the government, notably its possible involvement in construction of a pipeline to evacuate Rajasthan crude.

We have told the government we are concerned about the lack of progress on the pipeline, he said. Legally it (the pipeline) is not our obligation.

If we take on this obligation we need to know how the government will help us. Dhir said Cairn has a simple pipeline concept in preparation and that any outstanding issues need to be resolved by latest mid-2008 following which it would take 12-15 months to lay the pipeline in time for first production from the Northern Fields in the first half of 2009.

Dhir was unable to give an exact date for start of first production in 2009 because of uncertainties and because, typically these sort of dates fluctuate plus or minus a quarter. He stressed: We dont want to start producing without a pipeline in place.

Our responsibility (for the crude) ends at the outward flange of the field. Its the governments responsibility to buy the crude.

On uncertainty about the eventual buyer, Dhir was equally blunt. The government must decide who is the nominee.

It is not for us to decide. On price: We cant unilaterally give discounts, he said.

This affects revenue to the government of India and royalty to Rajasthan. Dhirs clinching argument came with some mundane numbers.

Any buyer, he said, would save 5% import duty and $1.50 per barrel freight charges by purchasing Rajasthan crude. Assume imports equivalent to 150,000 b/d from the Rajasthan fields and thats a tidy saving of $246m per annum no small amount.