"Mittal Investments and HPCL are close to signing a joint venture agreement for jointly building the 9 million tonnes a year Bhatinda refinery," an industry source said.
As per the broad understanding reached between the two firms during preliminary talks, HPCL and Mittal Investments may hold 49 per cent stake each in the Guru Gobind Singh
Refinery Ltd, the company implementing the project. The remaining two per cent stake would be offered to financial institutions.
In the likelihood of state-run exploration firm Oil India Ltd, which whom HPCL had been for some months discussing partnership for the refinery project, joining in the shareholding may be 26:26:26. The balance would bee offered in an initial public offering closer to commissioning of the refinery in 2010-11.
Mittal Investments is wholly owned by the Mittal family and is registered in Luxembourg. It hold 38 per cent in Mittal Steel Company, the Netherlands-based flagship company of the LN Mittal Group. Officials of both Mittal Investments and HPCL could not be immediately reached for comments.
The source said the Mittals may extend the partnership with HPCL to also include participation in the expansion of 7.5 million tonnes a year Vizag refinery and joint pursuit of oil assets abroad.
Mittal is the latest of a series of joint venture partners HPCL has had for the Bhatinda refinery. BP Plc of UK walked out of the project in March this year. Earlier, Saudi Aramco of Saudi Arabia had exited the project in 1998.
HPCL-Mittal combine would also lay a 1,100-km crude oil pipeline from Mundra part in Gujarat to Bhatinda and build a crude oil terminal and associated facilities at an estimated cost of $600-million.
The source said one a joint venture agreement was signed, Mittal Investments would be required to deposit $100-million in an escrow accounts. The amount could be withdrawn only if the government did not approve of the joint venture.
The approval of the Foreign Investment Promotion Board and Cabinet Committee on Economic Affairs are pre-requisites to the fortification of the joint venture as both the companies would invest over Rs 1,000 crore (Rs 10 billion).
HPCL has already invested about Rs 500 crore in the Bhatinda project. In the event of a possible divestment or relinquishment of stake by HPCL, Mittal Investment will have the option to buy the shares held by HPCL at a price determined by experts.
Should Mittal Investment decline, then the shares can be sold to a third party. Furthermore, if Mittal Investments decides to divest their shareholding, then HPCL has the Right of First Refusal on the shares through a similar mechanism.