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Falling Re helps Essar

Essar Oil, which is implementing a $6 billion refinery project in Gujarat, expects to bring down the cost of its 34 million tonnes per annum (TPA) refinery project from the earlier $6 billion to $5.5 billion. Anupama Airy reports.

business Updated: Mar 16, 2009 22:55 IST
Anupama Airy

Essar Oil, which is implementing a $6 billion refinery project in Gujarat, expects to bring down the cost of its 34 million tonnes per annum (TPA) refinery project from the earlier $6 billion to $5.5 billion.

Translated, that means a saving of Rs 2,500 crore.

“We expect the project cost to come down to $5.5 billion or even lower as a result of the steep fall in commodity prices,” said Naresh Kumar Nayyar, managing director and CEO, Essar Oil.

The biggest savings will come from the lower prices of steel, a major input in a refinery project, which have fallen by almost a third from June 2008 to Rs 35,000 per tonne.

The Rs 8,379 crore company will be able to process 34 million TPA of crude by December 2011, up three fold from 10.5 million TPA refinery at Vadinar in Gujarat today. In its expansion programme, Essar will ramp up the capacity by putting up an 18 million TPA new refinery by December 2011.

“We hope the global economy will revive by then (end-2011) and there will be demand for petroleum products when we complete our expansion,” he said.

The financial closure for the new refinery project is likely to be achieved by September 2009.

“We have already tied up $4.55 billion including $700 million from overseas markets,” Nayyar said. “The rest will come from domestic banks and financial institutions.”

On the petrochemicals side, the company has put on hold its plan for an integrated plant alongside its refinery project due to the slowdown in demand.

“We will look at petrochemicals only after completion of the refinery expansion,” Nayyar said.

On the fuel retailing business, Nayyar said the company plans to expand its fuel retail operations, now that crude oil prices have fallen.

He expects crude oil prices to stabilise in the range of $40-50 a barrel during the current calendar year due to a fall in global demand.

“We are planning to increase our retail outlets to 1,500 by the end of Mar 2010,” he said. Essar currently operates 1,200 retail outlets.