Indian Oil Corporation will bid for an oil block in Kuwait, company chairman and managing director M S Ramachandran said in Kolkata.

The company has formed a consortium with ONGC Videsh, the overseas arm of ONGC, for the purpose. British Petroleum and Occidental Oil and Gas Corporation are two other partners in the consortium.

"The block situated in north Kuwait is now producing 4,50,000 barrel per day. The project envisages to double production to 9,00,000 BPD," the IOC chairman said.

The investment for two Indian oil companies is pegged at $700 million. N K Nayyar, director (planning and business development) of IOC, said the corporation and OVL would have 10 per cent interest in the block.

The total investment in the block is estimated at $7 billion. Nayyar informed that the bidding was expected to take place by end of this month.

IOC is also working on a composite package of projects in Iran with GAIL India Ltd. The chairman informed that the project envisaged import of 5 million tonne LNG and also involvement in the upstream sector there.

IOC would look at the possibility of bidding for a gas field in Saudi Arabia. IOC and OVL have already partnered in that venture.

Other members of the consortium are being finalised. The project cost would be in the region of $5 billion.

Indian Oil is involved in the Farsi oil block in Iran where it has the operatorship. IOC and OVL have 40 per cent interest each in that block while the rest 20 per cent is with OIL India. In India, IOC has 10 oil and gas blocks under NELP and two coal bed methane (CBM) blocks.

Eastern refineries problem

Meanwhile, IOC today warned that its refineries in the eastern region, at Haldia and Barauni, were facing a viability problem owing to their uneconomic size and high handling cost of crude oil. Chairman M S Ramachandran issued this warning at a media meeting today.

The two refineries are dependent on Bay of Bengal ports such as Haldia, where the draft is so low that most of the crude had to be brought in using vessels of less than optimum size.

The draft in Haldia being less that 10m at most times, the cost of handling crude was higher by Rs 500 a tonne.

In the oil business today, the margin of a refinery was just the difference between crude price and the selling price of its distillates.

In the case of Haldia refinery, this meant that the unit had become unviable, as had the Barauni refinery which depended on oil pumped via pipeline from Haldia port.

To save the refineries, IOC has decided to offload oil at Paradeep and pump it via a pipeline to Haldia. Paradeep could handle ultra large size carriers. IOC will invest around Rs 400 crore (Rs 4 billion) in the pipeline.

The pipeline will, however, come as a rude shock to Kolkata Port Trust, which has been wooing IOC to continue handling oil at Haldia and had offered alternative solutions like floating offshore storage facilities.

This way, ultra large crude carriers could be handled. The IOC chairman said the options offered were costlier than the Paradeep pipeline option.

The capacity of the Haldia refinery would also be expanded by 1.5 million tonne to 7.5 million tonne.

The IOC chairman said handling crude had become so expensive that competing oil marketing companies could easily undercut IOC by importing refined crude products like petrol and diesel through Haldia port at a cost lower than the refinery gate cost of IOC.

As for Digboi, the refinery was using its location on the HBJ and north-east Indian pipeline system to actually pump back crude brought in from Haldia to the north-eastern refineries in its attempt to retain viability. This was also helping refineries in north-eastern India.

In any case, the refineries in north-east India, at Guwahati, Digboi and Bongaigaon, were no longer in danger of turning sick.