Has Bina Refinery been put in cold storage?

Even though Bharat Petroleum Corporation Ltd (BPCL)-promoted Bharat Oman Refineries Ltd (BORL) and MP Industry Minister Babulal Gaur are harping on the Rs 10,378-crore Bina Refinery, the ground realities and facts indicate that there is little chance that this project will ever come up.

There is still a question mark on Oman Oil Company's (BPCL's partner in the project) acquisition of a stake in BORL, despite the Centre having allowed BPCL to raise the stake in BORL from 26 per cent to 50 per cent. The MP government has also offered commercial tax concessions to the tune of Rs 285 crore.

BORL claims to have tie-ups for funding Rs 6,400 crore at 8.5 per cent for a period of 14 years from a consortium of 14 banks led by State Bank of India to give a final shape to the refinery by 2009.

OOC, which had pulled out of the project on the grounds of inordinate delay, has the "first right to refuse" to subscribe to the Rs 2,000 crore BPCL stake in the refinery. This big gap of Rs 2,000 crore may put the project in jeopardy in the days to come.

Further, the low volume of refining capacity, minuscule production of by-products like naphtha and coke, pending work on the 983-km Vadinar-Bina pipeline and road construction make the refinery potentially unviable.

If Oman Oil refuses to back the project BORL has only a few options "" either go public, a tough task since the bull run is over, or go thorough external commercial borrowing. But much will hinge upon market conditions and the company's aggressiveness.

Now in a desperate bid to cajole its partner OOC to rejoin the project, BORL has sought the support of the state department of industry and the public relations department to highlight and publicise the project, although the state will get no benefit out of it.

The company made a presentation before Gaur, who expressed his confidence in the success of refinery and asked his team to support the project in publicity. "The project will bring a change in the economically weak Bundelkhand region," said Gaur.

"We want to showcase the project in forthcoming roadshows to project Madhya Pradesh at various places. These roadshows will be organised in association with Ficci," said OP Rawat, principal secretary, department of industries.

Barring a stretch of a boundary wall and a site office, nothing has taken shape in the last eight months at the Agasod site.

Even an important road that connects Bina with National Highway No 3 through Biaora town in Rajgarh district is yet to be constructed.

The road is important for the project to transport costly equipment. "Each piece of equipment will be important to the company and will not be less than Rs 40-45 crore. We have been told the road will be completed by 2007," said RP Singh, managing director of BPCL.

Work orders have only been issued for cosmetic changes on the land like site grading, inner roads, drains, boundary wall, site office, hostel building, warehouse, watch tower and the approach road from water intake to refinery. Even an approach road of 15 km from Bina to Agasod is in a sorry state.

Its capacity itself is a question on its viability. "A 6-million tonne refinery is never a viable project, the project will churn out results only after expansion," said a government source. BPCL's Singh also subscribed to this view, saying, "Initially it is a 6-million tonne refinery but we will have to increase the capacity to 12 million tones by 2012."

Similarly, its by-products seem to add hardly any value to the project. The refinery will produce 234,000 metric tones of LPG, 272,000 tonnes of naphtha, 385,000 tones of Euro III motor spirit, 400,000 tonnes of Euro-IV motor spirit, 441,000 of supreme kerosene oil, 500,000 of aviation turbine fuel, 1,871,000 tonnes of Euro III high speed diesel, 1,000,000 tonnes of Euro-IV high speed diesel, 109,000 tonnes of sulphur, 103,000 tonnes of coke and 685,000 tonnes of fuel and loss.

A small quantity of 272,000 tonnes of naphtha cannot feed a fertiliser plant or any petro complex.

"The refinery will produce small quantity of naphtha. Only capacity expansion will create chances of creation of petro complex or supply to fertiliser plant," admits Singh.

Also, BORL has yet to work out the sale of other by-products like 103,000 tonnes of coke and 109,000 tonnes of sulphur annually in a market where biggies like Reliance already exist.