by R. Sasankan

Tiny oil-rich Kuwait was outwitted by its more influential Middle Eastern neighbours in the battle for big stakes in India’s hugely attractive oil refinery sector. Kuwait has been careful not to make a lot of noise while scouting for business opportunities, a character trait that can be attributed to its air of superiority and deep disdain for its culturally coarse but fabulously wealthy neighbours.

State-owned Kuwait Petroleum Corporation (KPC) was the first Middle Eastern company to propose equity participation in an Indian public sector refinery. Close to two decades ago, Indian Oil Corporation (IOC) proposed to set up a 15 million ton refinery cum petrochemical complex at Paradip in the state of Odisha. At that time, KPC came up with an offer to invest in the venture and even signed a Memorandum of Understanding (MoU). Later, however, the two companies bickered over the terms of investment such as the quantum of crude to be sourced from Kuwait and marketing rights. But the two sides did not air their differences in the public domain. When KPC did not have its way, it quietly dumped the project. Most importantly, Kuwait wasn’t piqued by the development and the state-owned Indian refiners continued to source their crude oil imports from Kuwait without any problems. IOC did feel let down by Kuwait’s decision and the project was delayed. Eventually, IOC pruned the size of the project, delinking the petrochemicals segment. Last year, the project was fully commissioned.

Meanwhile, Oman Oil Company invested in BPCL’s 6 million ton refinery at Bina in the state of Madhya Pradesh. Not many in the oil sector, certainly not KPC, believed that Middle Eastern heavyweights like Saudi Aramco and ADNOC would enter India in a big way. At one stage, Saudi Aramco talked about investing in an existing PSU refinery. KPC clearly felt outgunned when these companies clinched the deal for the proposed 60 MMTPA mega refinery on the west coast in the state of Maharashtra.

KPC soon began scouting for an opportunity to invest in an operating PSU refinery and set its eyes on Bharat-Oman Refinery Ltd (BORL), which is a 50:50 Joint Venture between Bharat Petroleum Corporation Ltd (BPCL) and Oman Oil Company. But if the market mavens are to be believed, KPC isn’t having an easy ride into this project. It has had to contend with many rivals and a conservative BPCL management.

BPCL was originally a subsidiary of Shell before it was nationalised in the 1970s. It still has very strong Occidental cultural roots. Given an option, BPCL would prefer to rope in Shell as its partner for the Bina refinery. Exxon-Mobil too has evinced interest in Bina refinery. But the race for Bina took a dramatic turn with the entry of Saudi Aramco, which is the leading light of the 60 MMTPA mega refinery in which BPCL is a partner along with IOC and HPCL. Saudi Aramco probably does not want to wait till the new refinery on the west coast is commissioned as it is only too keenly aware that in Indian conditions, it could take a minimum of five years before the project gets off the ground.

Aramco remains committed to the mega refinery whose exact location is a subject matter of intense speculation. The discussions that the BPCL management had with these parties remain gridlocked over the issue of marketing rights. BPCL does not want to part with the marketing rights. KPC stands a chance if it drops the stipulation for marketing rights which, on present reckoning, looks difficult. Crude oil supply is another attraction but it isn’t clear how far BPCL will be prepared to go in sourcing crude from Kuwait. As things stand, Saudi Aramco enjoys a better equation with Indian PSUs than KPC.

Oman Oil Company did not participate in Bina refinery’s on-going expansion which raised its capacity to 7.8 million ton per annum. BPCL is keen on expanding capacity further to 15 million tons. If Oman Oil Company does not pay for its share of the costs for capacity expansion, which is due to be completed by end 2018, BPCL’s share in the joint venture will rise to 74 per cent. BPCL will be willing to part with the 24 per cent if Oman Oil Company does not come forward and shoulder the burden of expansion.

Some experts believe that it could throw open a window of opportunity for KPC which could then exercise an option to buy out the Oman company’s stake in the Bina project. It doesn’t, however, look like a very credible option given the fact that India has emerged as an attractive market for global investors. Ever since its proposal for an offshore gas pipeline to India collapsed, Oman Oil Company has been striving to forge an energy link with India. The investment in Bina was part of that strategy.

If the Bina deal materialises, KPC can claim that it is already in the Indian refinery sector even as its other Middle East rivals are struggling to give some shape to the idea of a giant refinery project on the west coast whose location is uncertain.

Market circles not familiar with the cultural differences among the Middle Eastern countries believed that KPC would be ready to join Saudi Aramco and ADNOC in the proposed 60 MMTPA refinery on the west coast in the state of Maharashtra. KPC would not be comfortable in any setup where Saudi Aramco could end up calling the shots. There are no hostilities between the two sides, but this is the reality. KPC, however, wants to enter India before the mega refinery is commissioned.

There are a couple of other options. Lakshmi Mittal, the joint venture partner of HPCL in the 9 MMTPA at Bathinda in the state of Punjab, could also be approached. But it will be difficult to sew up a deal with the London-based tycoon. Would KPC prefer to approach IOC for a stake in the Paradip refinery after all these years? IOC may not be averse to considering such a proposition provided KPC does not come up with unpalatable terms. The business atmosphere in India has changed dramatically. Unlike in the past, global investors are now chasing IOC and the other Indian PSUs in the oil sector.