Rajasthan offers to set up refinery for Cairn oil

The Rajasthan government has decided to go ahead and build a refinery at Barmer even as Oil and Natural Gas Corporation (ONGC), the company that was planning to set up a refinery in the state, backs out.

The proposed 7.5 million tonne per annum (mtpa) refinery was to process crude oil from Cairn India's field in Barmer, which is expected to start producing in the first half of 2009.

ONGC officials say a refinery is not feasible as the oil from the field is "waxy" and of very poor quality. Besides, the peak production period of the field "" when it is expected to yield 150,000 barrels per day "" is just four years.

The petroleum ministry has, therefore, approved a $600 million special pre-heated crude oil pipeline to carry oil from Rajasthan to the Gujarat coast.

"The pipeline does not make sense at all if it is not connected to a refinery at the well-head in Barmer. We are ready to build the refinery ourselves in partnership with the private sector...under a PPP model," said Rajasthan's Minister of Industries and Public Enterprises Narpat Singh Rajvi.

Confirming this, Rajasthan Chief Minister Vasundhara Raje said her government was in discussions with the petroleum ministry and the refinery would certainly come up. About building the refinery on their own or with private partnership, Raje said: "We have not closed any doors."

ONGC has been conducting feasibility studies on the proposed refinery with different capacities. However, a refinery of even half the size was found to be unviable unless the state government gives incentives. ONGC has asked the Rajasthan government for fiscal incentives of Rs 1,300 crore a year over a 15-year period.

"Incentives of that kind are too huge. We have given them our estimate of how much incentives we can provide," said another state government official.

Rajvi said the state government would do all it took to make sure that the refinery was set up.

The Rajasthan oil field, the largest discovery in the country since the ONGC Bombay High discovery in 1972, is estimated to have 1 billion barrels of oil.

This could boost the country's output by about 20 per cent from the current production of about 680,000 barrels a day once production starts in 2009.

Moreover, the Rajasthan government will earn $1 million a day in royalty from the crude oil, once production starts.

The 568-km pipeline will be financed by Cairn and ONGC in a 70:30 ratio. Cairn has already done the design, engineering and route survey for the pipeline.