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Foreign oil majors are eager to be part of the country's lucrative refining sector.

As Indian companies pump in big money into oil refining "" increasing the refining capacity by 62 per cent to 241 mtpa by 2012 "" overseas oil majors are keen to be part of the growth game being played out in the centre of the Asia-Pacific consumption hub.

Set to become the "world's refiner" in finance minister P Chidambaram's words, interest in the refinery sector from overseas companies is getting increasingly heightened.

In order to facilitate overseas investment, the government is considering raising the foreign direct investment cap in state-owned refineries to 49 per cent from the current 26 per cent.

According to industry analysts, India (along with China and West Asia) is set to be among the major refining hubs of the world, thanks to its locational advantage. In fact, India is already a net exporter of petroleum products, though it imports as much as 72 per cent of its crude oil.

The latest to enter the fray is India-born billionaire Lakshmi Mittal, who has picked up 49 per cent stake in Hindustan Petroleum's much-delayed refinery at Bathinda in Punjab.

During the announcement of the agreement, petroleum secretary M S Srinivasan had said the petroleum ministry was confident the Foreign Investment Promotion Board would allow Mittal to buy 49 per cent in the Bathinda refinery.

If allowed, Mittal, through Mittal Investments, would bring in FDI of Rs 3,700 crore in a single go. "That is a huge amount for a single batch of investment," Srinivasan told reporters recently.

Officials in the petroleum ministry say that the government is considering increasing the cap to 49 per cent as it does not make sense to breach the 26 per cent cap for a single project.

"Investment in the sector is going to be huge, and we need to invite the global players to invest as much as possible," according to an official in the petroleum ministry.

Foreign investment is also likely to come in for HPCL's capacity expansion of its refinery. HPCL is setting up a 9 million tonne per annum export-oriented refinery adjacent to the existing refinery at Vishkapatnam at an estimated investment of Rs 12,000 crore. The refinery will be completed in 2011.

Interest in refineries is also coming from a Saudi Arabian company, Saudi Aramco. During a week-long energy conference in New Delhi in January this year, Saudi Arabia's oil minister met petroleum minister Murli Deora.

Indian Oil Corporation, India's largest state-owned refiner, had invited Saudi Aramco to pick up stake in its under-construction 9 million tonne per annum refinery at Paradip in Orissa. The refinery, which will also have an integrated petrochemical complex, is being constructed at an investment of nearly Rs 26,000 crore.

Venezuelan company Petroleos de Venezuela has also expressed interest in Mangalore Refinery and Petrochemical, in which the Oil and Natural Gas Corporation (ONGC) has a majority stake.

And then, of course, there is Reliance. The company's upcoming 29 million tonne per annum refinery at Jamnagar is likely to get more foreign investment as Chevron, which already owns 5 per cent in Reliance Petroleum, the company implementing the refinery project. Chevron is likely to exercise its option of raising its stake to 29 per cent.

REFINE-MENT

Oman Oil forms JV with BPCL for Bina refinery

Mittal Investments buys 49 per cent in HPCL's Bathinda refinery for Rs 3,300 cr

IOC offers stake to Saudi Aramco in Paradip refinery

Chevron likely to raise stake to 29 per cent in Reliance's new refinery at Jamnagar

Total, Kuwait Petro may pick up stake in HPCL's refinery expansion at Vizag

SNIPPETS

Outbound traffic
Even though the refining opportunities lie within the country, Indian companies are attempting to set up shop abroad.

The recent Hindustan Petroleum-L N Mittal combine has formed a joint venture to bid for 51 per cent stake in a refinery at Port Harcourt in Nigeria. Indian Oil Corporation, too, which has shown interest in the same refinery, is also reportedly eyeing stakes in other refineries in China, Nigeria and West Asia.

It is also looking to set up greenfield refineries. Reliance also proposes to set up a refinery in Russia in exchange for equity oil from that country's rich oil fields. The Indian companies are, however, keen on refinery stakes only if the host country allots them oil blocks.

"We continue in our attempts to enter the refining sector overseas. The doors are not closed even though there are no Indian refineries overseas," says an IOC official. The industry, however, is not too worried about the lack of Indian refineries globally.

"The opportunities lie within the country. Oil companies can better market petroleum products from India, when they are only exporting the specific product to countries which need that product," he says.

Petrochem story
Even as overseas companies look to enter the country's refinery sector, Indian companies are moving further downstream to enter the petrochemical segment.

Upcoming refineries are being planned with integrated petrochemical complexes which will use the refinery byproducts such as naphtha to produce ethylene and propylene complexes, besides other petrochemicals.

The government too is promoting the segment through various initiatives like the proposed SEZ-type scheme for the sector dubbed Petroleum, Chemicals and Petrochemicals Investment Regions (PCPIR).

Reliance Industries' recent big announcement of a 2 million tonne per annum petrochemical complex at Jamnagar is being positioned as competition to the producers of olefins and derivatives in West Asia and China.

The 2 million tonne per annum petrochemical complex at the Jamnagar Special Economic Zone will use gas from its upcoming refinery as feedstock. It is the largest single location integrated petrochemical complex in the country, and will become operational in 2010-11.