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ONGC Ltd has decided to exit the proposed refinery-cum-petrochemicals project at Kakinada in Andhra Pradesh, making way for the GMR Group, which will hold 51% equity in the project that was originally to cost Rs 31,000 crore. The project is part of Andhra Pradesh’s Petroleum Chemical and Petrochemical Investment Region (PCPIR) proposed over 600 square miles and envisaged to attract investments worth Rs 340,000 crore over the next ten years. GMR’s entry is expected to put PCPIR on the fast-track now.

However, the refinery project is likely to cost close to Rs 40,000 crore with GMR indicating that it would like to increase the capacity upwards of 20 million tonnes to make it more viable, sources privy to the proceedings of a board meeting today told DNA Money.

It is understood that GMR has proposed a higher capacity upwards of 20 million tonnes of refining to make the export oriented project more viable. Reliance Industries had started its own refinery with a capacity of 30 million tonnes and was now going in for an expansion, it was pointed out at the board meeting held on Monday.

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Reliance Industries and Essar Oil , India’s largest private sector oil refiners, are set to create the world’s biggest petroleum refining hub as part of plans to expand their plants in Jamnagar, western India. Essar has announced a $6bn expansion plan to more than triple capacity at its refinery, while Reliance, at its site a few kilometres away, is working on plans to almost double capacity.

The expansion projects will bring their combined refining capacity at Jamnagar to 1.9m barrels a day, the largest in the world in a single location, outstripping hubs such as Rotterdam and Singapore and those in China and South Korea, according to figures compiled by Fesharaki Associates Consulting and Technical Services, Singapore.

An FCC regenerator being prepared for erection at the Reliance Petrochemical Complex in Jamnagar

Under their plans, Essar announced it was lifting capacity at its plant to 700,000 b/d by 2010 from 220,000 b/d. Reliance is in the middle of a $6bn investment to expand capacity to 1.24m b/d from 660,000 b/d by next year. Once the expansion works are complete, the nearest comparable hub will be South Korea’s Ulsan at 1.35m b/d, Facts said.

Prashant Ruia, Essar group director, said the total development cost of the refinery including the expansion would be $9bn, which analysts consider extremely cheap against the global average of about $13bn-$15bn for the same size plant.

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