News Article

BP to Spice up refinery

New Delhi, March 24: BP will enter into a strategic agreement to supply crude oil to Spice Energy for the 5-million-tonne refinery at Haldia being set up by CALS Refineries. Spice Energy is the holding company of CALS.

Sources said officials of the two companies had finalised the memorandum of understanding and would strike the deal soon.

BP, formerly British Petroleum, will supply 2.5 million tonnes of heavy crude and a similar quantity of light crude to the Haldia refinery.

CALS Refineries will produce aviation turbine fuel, LPG and petroleum coke for the domestic market. It also plans to produce petrol and diesel for export, which BP is interested in buying out.

CALS Refineries raised $200 million through a global depository receipt on the Luxembourg Stock Exchange in November, attracting investments from the Dubai Investment Group, part of Dubai Holding, and London’s RP Capital. It now hopes to raise another $100-200 million from a strategic investor.

Spice Energy had bought the 90,000-barrel-per-day (bpd) refinery from Germany’s Lohrmann International. It will dismantle the refinery, pack it in containers and ship it to Haldia.

Located at Ingolstadt on the river Danube, the refinery is one of the three plants that make up Bayernoil, a joint venture among BP, Austria’s OMV, Italy’s Eni and PDVSA of Venezuela.

The 32,000-tonne consignment will be shipped to Antwerp, and then through the Suez Canal to Haldia. The reconstruction work will be carried out in 24 months at a cost of around $1 billion.

According to Spice Energy estimates, it will cost more than $1.5 billion and take 60 months to build a refinery from scratch.

BP usually supplies to refineries in which it has an equity stake. Crude supply to the Bayernoil refinery has been stopped after its sale.

However, the Haldia refinery will operate on the basis of a supply and offtake trading agreement, officials said.

BP was earlier in talks with Hindustan Petroleum Corporation to build the Bhatinda refinery at an investment of $3 billion.

But negotiations failed to make any headway and the Mittals got the stake in the refinery.

The proposal in this year’s budget to withdraw a seven-year tax holiday for refineries that start operation after April 2009 has not discouraged CALS Refinery or BP from going ahead with the Haldia project as they expect some clarification before the Finance Bill is passed by Parliament.

According to Manish Kumar of KPMG, “New refineries that intend to serve the domestic market may be hit. Tax sops help manage fluctuations. We are in an era of high margins but once they are lower, the incentives or lack of them may impact their profitability.”

India plans to add 2.14 million bpd to its existing 2.98 million bpd capacity by 2012 to become a global refining hub.