IOC gets approval for new refinery

Updated on Mar 31, 2006 05:56 PM IST

IOC to go ahead with plans to build a new 300,000 barrels per day (bpd) refinery.

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HT Image
None | ByReuters, New Delhi

State-run Indian Oil Corp decided on Thursday to go ahead with plans to build a new 300,000 barrels per day (bpd) refinery, ignoring concerns that weak growth in domestic demand may hurt the project.

The company had earlier announced tentative plans to build the refinery at the coastal town of Paradip in eastern India, but its board of directors had not approved it.

"Giving the go-ahead for the refinery-cum-petrochemicals complex, the Indian Oil Board has sanctioned over Rs 11 billion ($246 million) for the initial activities for the project," the company said in a statement.

The project will have facilities to produce paraxylene, polypropylene and styrene, it said.

To import crude oil for the new refinery, IOC will expand its facilities which handle very large crude carriers (VLCCs) for its refineries at Haldia and Barauni, it said.

IOC also plans to build a naphtha cracker and polymer units but these will be set up in the second phase of the project.

A recent oil ministry report on planned refining projects said the Paradip refinery faced the risk of weak domestic demand but a government official said last week that India will continue to encourage such investment.

India, which imports 70 per cent of the oil it consumes, has adequate refining capacity to meet domestic demand and analysts say planned new refineries may face a slump in profitability.

Domestic refining capacity of 133 million tonnes (2.66 million barrels per day) will rise to 154 million tonnes next year and 210 million tonnes (4.2 million bpd) in 2012, much higher than the projected rise in domestic demand.

India's 6 per cent growth in domestic demand in 2004 and rising income from exports of refined products encouraged several refiners to expand capacity, but last year, demand rose only 1.1 per cent or 40,000 bpd.

India's oil ministry and state-refiners expect domestic demand to grow 4-5 per cent a year but most analysts have forecast a slower growth.

IOC had initially planned a 180,000-bpd refinery at Paradip.

"However, considering the demand for fuels and petrochemical products in the domestic and export markets, the capacity has been enhanced to 300,000 bpd to derive the benefits of economies of scale," it said.

"Petrochemical facilities have been added to use the surplus naphtha for value addition, thus enhancing the viability and robustness of the project," it said.

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