HPCL Barmer refinery project certain to suffer Rs 4,680 crore cost overrun

Hindustan Petroleum Corporation’s 9-million tonne (mt) a year Barmer refinery in Rajasthan, which has been in the works for over four years now, will cost Rs 41,000-42,000 crore, up from the previous estimate of Rs 37,320 crore. 

HPCL, in March 2013, had signed an MoU with the Rajasthan government for setting up the refinery-cum-petrochemical complex in the Thar desert near the oil discoveries made by Cairn India.

But the refinery never took off as a change of guard in the state led to Rajasthan government putting on hold the fiscal incentives for the project.

“We are talking to the state government explaining to them the reconfiguration of the unit,” HPCL Director (Refineries) Vinod S Shenoy said.

While the size of the refinery remains the same, the unit will cost more because it now has to be built to produce Euro-VI grade petrol and diesel, he said.

 “The project will cost more than the earlier estimate of Rs 37,000 crore,” he said, adding that Engineers India Ltd (EIL) has been asked to do a feasibility study. While stating that the cost numbers have not yet been worked out, he said the project may need Rs 4,000-5,000 crore more. 

Shenoy said the discussions with the Rajasthan government have not reached the stage of negotiating the exact fiscal concessions that the company would need to set up the project.

The HPCL board, in March 2013, had approved setting up of the complex at a cost of Rs 37,320 crore. Half of the crude oil requirement at the proposed refinery at Barmer was to come from the neighbouring oil fields of Cairn India. The rest was to be imported crude.

At that point, HPCL had asked the state government to extend fiscal benefits like the ones extended by Gujarat and Odisha to new refinery projects to make the Barmer unit viable. The concessions included 50 per cent exemption in excise duty and the state government picking a small stake in the roject. 

Originally, the state-owned Oil and Natural Gas Corporation (ONGC), which owns 30 per cent interest in the Barmer oil fields of Cairn India, in 2005 had committed to building the refinery, but later started soft-pedaling the project.