Amid insurance woes, the US sanctions on Iran may well cast a shadow on expansion plans by Indian refiners.
According to an official source, the Rs 8,000-crore (Rs 80-billion) capacity expansion plan by Chennai Petroleum Corporation Ltd [ Get Quote ] may get hit as European companies are reluctant to give technology licensing for the upcoming six-million tonne units.
The company, along with Oil ans Natural Gas Corporation’s subsidiary Mangalore Refinery and Petrochemicals [ Get Quote ] Limited, was struggling to get reinsurance following the fresh sanctions on February 6.
While MRPL is the largest importer of Iran crude in the country, National Iranian Oil Company owns more than 15 per cent stake in Indian Oil Corporation [ Get Quote ]’s CPCL.
According to an official, the European majors have already told CPCL that if sanctions remain, it would be difficult for them to assure technological licensing.
Confirming this, A S Basu, managing director of CPCL, said: “Our insurance is due on September and they are reluctant to reinsure the refinery.
“But a major problem is regarding technology licencing for upcoming units.
“Most of these companies are European firms and it has to be seen whether they will support us.” On the other hand, there are concerns over assistance of getting technological catalysts for existing units from European companies, too.
CPCL wants to come up with the additional six-million-tonne (mt) capacity by 2018-19. With clouds over its future, CPCL is yet to decide on the number of units that they want to come up with.
“For some of the upcoming units, we can use open-end technology, but that will not serve the purpose for all,” Basu added.
On Tuesday, world powers offered Iran a softening of sanctions in exchange for concessions over its controversial nuclear programme, in crunch talks in Kazakhstan aimed at ending a decade of deadlock in the crisis.
However, giving relief to the Indian refineries, the US, China, France [ Images ], Russia [ Images ], Britain and Germany [ Images ] offered some sanctions relief in return for Iran curbing its sensitive nuclear work.
Although MRPL’s expansion plans are not currently affected, it may impact its phase IV plans of the ONGC [ Get Quote ] subsidiary and many other refineries in India, if the stalemate continues.
“We have already got technology licencing from international firms, for the ongoing projects,” said P P Upadhya, managing director, MRPL.
Because of re-insurance woes, companies such as Hindustan Petroleum Corporation [ Get Quote ] were looking for other options, including importing from alternative sources such as Saudi Arabia and Kuwait. MRPL had cut down its imports from Iran.
MRPL’s imports are down 39 per cent from 6.2 mt during the last financial year to 3.8 mt in the current financial year.
Recently, reports indicated that the government will ensure its refiners have insurance for plants that run crude from Iran.
Recently, ONGC’s Chairman and Managing Director Sudhir Vasudeva, too, expressed hope that the issue would be solved soon.
According to reports, Iran would lose revenues worth more than $2.5 billion due to global sanctions.
Importing countries may be forced to go for payment to Iran through exchange of goods and local currency.
For CPCL, getting insurance was an issue last year as well.
“We are in talks with our insurer, United India, regarding this,” Basu added.