With Oman Oil Company reluctant to put more money, the government on Wednesday allowed Bharat Petroleum Corp (BPCL) to fund the Rs 3,000-crore expansion of Bina refinery in Madhya Pradesh by putting in more equity.
BPCL, India's second-biggest state refiner, plans to raise Bina refinery capacity in two phases - to 7.8 million tonnes a year from current six million tonnes at a cost of Rs 3,072 crore by 2018 and then to 15 million tonnes at an additional investment of Rs 18,000-20,000 crore in five-six years.
The Cabinet chaired by Prime Minister Narendra Modi gave its approval to enhance investment by BPCL in Bharat Oman Refineries Limited (BORL) for the first phase of expansion.
"The investment amount could be enhanced up to a maximum of Rs 3000 crore by way of subscription of convertible warrants / other instruments giving right to convert it into equity shares to be issued by BORL," an official statement said.
The infusion of funds, it said, will enable BORL to overcome the implications on account of the erosion of the net worth.
The expansion will enhance the availability of petroleum products in the northern and central parts of the country.
Oman Oil Company (OCC), which holds 26 per cent stake in the Bharat Oman Refineries (BORL) - the firm that built the refinery - is unwilling to participate in the expansion.
OCC in 2009 paid a 50 per cent premium for a re-entry into the Rs 11,397-crore Bina refinery project. The project was originally conceived through a joint venture company, BORL but the OCC did not contribute equity beyond the initial Rs 75 crore.
The Omanese oil major came back to pick up 26 per cent stake in the project for an additional Rs 1,220 crore.
The BORL was formed as an equal joint venture company way back in 1993. However, following inordinate delays in the implementation of the project, OOC froze its investment in the company at Rs 75 crore for a two per cent equity stake.
BPCL, which holds 49 per cent stake in the project, provided the unbridged portion of the Rs 4,000-crore equity in form of loan. The state-run firm got its loan back once OOC made payments for its 26 per cent share.
The remaining 25 per cent is with financial institutions.
The expansion will help the refinery to produce petrol and diesel confirming to Euro-VI norm.
"OOC while expressing their support for the project, had indicated that they are not prepared to commit further funds for the project at this stage. Therefore, BPCL Board has decided to infuse funds to the tune of Rs 3,000 crore for funding the debottlenecking project and for meeting the extraordinary losses suffered on account of the sharp fall in the prices of crude oil and finished products," the statement said.
BPCL also operates a 12 million tonnes a year refinery at Mumbai and 9.5 million tonnes Kochi unit. It also has majority stakes in the three million tonnes Numaligarh refinery in Assam.