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Cairn seeks permission to sell crude oil to RIL's SEZ refinery

Last Updated: Wednesday, September 19, 2012 - 19:42

New Delhi: Cairn India has once again sought permission to sell its Rajasthan crude oil to Reliance Industries' SEZ refinery at Jamnagar in Gujarat to ensure uninterrupted production from the prolofic fields.

Cairn currently sells 80,000 barrels per day or 4 million tons a year of crude from Rajasthan to RIL's domestic tariff area (DTA) refinery at Jamnagar and another 70,000 bpd to Essar Oil's Vadinar unit in Gujarat.

As output from Rajasthan is set to rise, it now wants to sell the oil to RIL only-for-exports or SEZ refinery, which sits adjacent to the firm's DTA unit, sources said.

"Due to the quality characteristics of Rajasthan crude oil, PSU buyers (Indian Oil Corp's Panipat and Koyali refineries) are able to offtake only a part of the production, resulting in high dependence on private refineries for ensuring continuous production," Cairn wrote to the Oil Ministry on September 6.

Cairn said it can sell oil only to RIL because a 80-km stretch of its Barmer-Bhogat pipeline, which is meant to transport crude oil from Rajasthan oil fields to west coast so it can be shipped to oil refineries elsewhere in the country, is struck due to ROU problems.

Besides RIL and Essar refineries, it sells 15,000-20,000 bpd of Rajasthan crude to IOC.

"As you are aware, Salaya-Bhogat section of the pipeline is held up due to ROU issue, limiting us to refineres enroute the pipeline. Any operational exigencies in IOC/RIL/Essar will impact the production of crude oil from the (Rajasthan) Block.

"This can be mitigated to certain extent through adding supply to RIL-SEZ refinery. They have shown interest in offtaking Rajasthan crude oil and thus can provide some flexibility in supplies. There will not be any additional capex to supply to RIL-SEZ," Cairn wrote.

As per present policy, any sale to a unit in a Special Economic Zone is considered export. With country being a net importer of crude oil, export of domestically produced crude oil is not permitted and only under special permits can it be done through state trading enterprise, Indian Oil Corp (IOC).

Cairn wants to make the sales by-passing IOC.

Also, supply of crude to RIL's SEZ refinery would result in loss to the exchequer as export of crude oil and supply to the only-for-export unit is eligible for Central Sales Tax (CST) and cess exemption. The government stands to lose Rs 546 crore annually if 20,000 bpd or 1 million tons of oil is supplied to the SEZ refinery at USD 100 per barrel oil price.

Of the Rs 546 crore, Rs 77 crore would be on account of CST (at 2 percent) while Rs 469 crore would be on account of cess (oil cess at the rate of Rs 4,500 per ton, NCCD cess at Rs 50 per ton and education cess at rate of 3 percent).

Sources said Cairn claims that allowing supply to RIL's
SEZ refinery would instead help government earn more in terms of royalty and profit petroleum.

The government would gain Rs 600 crore per annum as royalty (20 percent of well-head value at USD 100 per barrel) and profit petroleum (at 20 percent tranche level).

Sources said RIL has made a request for buying an additional 30,000 bpd of Cairn crude at its 29 million tons SEZ refinery.

"We request Ministry of Petroleum and Natural Gas to grant us an approval to supply Rajasthan crude oil to RIL-SEZ refinery to ensure uninterrupted production from the Rajasthan fields," Cairn wrote said.

Cairn currently produces 175,000 bpd from Rajasthan block and can go up to 235,000 bpd by next year end.

RIL's refinery complex at Jamnagar, consisting of the old DTA refinery and an SEZ unit, are connected by a heated pipeline to the Mangala field in Rajasthan.

Rajasthan crude is very heavy with API (American Petroleum Institute) gravity between 25-30. Also, waxiness of the crude turns it into solid at room temperature.

Transportation of the Rajasthan crude therefore, requires special heating arrangements in the pipeline to keep the crude in a liquid form. Most Indian domestic refineries lack the configuration to process Rajasthan crude due to its quality. Others face logistical issues.

Sources said RIL's SEZ refinery, which is designed to process far heavier crudes, is unable to use Rajasthan crude as the same has been classified as a restricted item under the current Foreign Trade Policy (FTP) provisions.


First Published: Wednesday, September 19, 2012 - 19:42
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