How HPCL's dream of a refinery in Rajasthan turned sour

The Congress government during its reign between 2008 to 2013 under Ashok Gehlot as the chief minister offered several sops to the people by way of subsidised food grains, pension, free medicine for all and also promised a refinery by signing a joint venture agreement with the state-owned Hindustan Petroleum Corporation Ltd (HPCL). The refinery which was to be set up at Pachpadra in the border district of Barmer was to add value to oil and gas found in the thick of the Thar desert.

The Gehlot government with much fan fare had publicised that it was the biggest refinery that the country would have and the petro-chemical complex that would come up would provide jobs to two lakh people.

It was expected that the various sops and the refinery would allow the Congress to retain power. But the party was swept away in the (Narendra) Modi wave so much so that in Barmer where the refinery was to be set up the Congress could retain only one seat and in the entire Rajasthan the party was routed. The party which was expected to thrive on the welfare schemes gave an all time low performance to win just 22 out of the 200 seats.

The Congress government had signed a joint venture agreement with HPCL to set up the Rs 37,210 crore (Rs 372.1 billion) nine-million tonne capacity refinery in March 2013.
It was expected that the Bharatiya Janata Party government would pursue the project with equal zeal and would take the credit for the completion and commissioning of the refinery. But when Vasundhara Raje government started reviewing the various schemes launched during the Congress government, the committee observed that the refinery was being set up sacrificing the interest of the state.

“The previous government has signed an MoU with the HPCL under which the state government agreed to provide Rs 3,736 crore (Rs 37.36 billion) per annum as loan to the oil major for 15 years. This loan was interest free and thus made a commitment to give Rs 56,000 crore (Rs 560 billion) in 15 years to the joint venture company.

The appraisal report of the refinery project suggest that after the commencement of commercial production of the refinery, the joint venture companies would be able to make over Rs 68,000 crore (Rs 680 billion) profit. But the state government erred in keeping its stake at 26 per cent only. The stake of the state government should have been more. The state government had to give land and all its natural resources. My government would renegotiate the entiredeal,” said Raje.

HPCL’s stake in this joint venture was 74 per cent and the state government’s 26 per cent.

The chief minister while presenting the state budget referred to the refinery and raised a big question mark over the state’s most ambitious project.

Raje, who is also holding the finance portfolio decided not to permit the project to go ahead in its present form indicating that the previous MoU signed by the Congress government would be renegotiated so that the state government could get a better deal. Even when the MoU was signed during the Congress government she accused it of showing extraordinary hurry to give the green signal to the refinery without caring much for the state’s interest.

She insisted that as Rajasthan was an oil producing state, setting up a refinery should be as much a necessity for the Union government as it was for the state government. She had cited the example of the Bhatinda refinery which was set up by HPCL and later the Mittal group became a joint venture partner in it with 49 per cent stake.

She said the Punjab government,which had provided land, roads and canal water charged HPCL for everything.

In June this year, HPCL officials who met Vasundhara Raje got the first hint that she was not happy with the terms of the MoU that the Congress government signed and she wanted to renegotiate the terms. She made it clear that the fiscal concession offered by the state government for the nine-million tonne project was unjustified. The committee set up by the chief minister to review all the major projects announced by Gehlot government in its finding was unhappy with the way the state’s interest was sacrificed. Under the earlier terms, the state government, apart from 26 per cent state was also expected to extend support on purchase of crude oil by the refinery and give discounts to oil marketing companies. Half the crude from local wells operated by Cairn was to be used and HPCL had planned to import crude from the Gulf and South America for fully using the capacity of the refinery.

Vasundhara Raje insisted that the Bhatinda formula should be made applicable and the state government like Mittal should enjoy a 49 per cent stake. A senior IAS officer Ashok Singhvi has been given the task to work out a new plan and discuss the issue with the HPCL officials.

HPCL,during the negotiation with the Congress government asked the State Government to extend fiscal benefits like the ones extended by Gujarat and Orissa to new refinery projects, to make the Barmer unit viable. The concessions include 50 per cent exemption in excise duty.

Cairn India, which holds 70 per cent interest in the fields, currently produces about 175,000 barrels per day oil (8.75 million tonnes a year) from the Rajasthan fields and had the potential to go up to 300,000 bpd (15 million tonnes).

”When the Bhatinda oil refinery’s foundation stone was laid I had questioned the decision of the NDA government headed by Atal Bihari Vajpayee. Rajasthan is an oil producing state, but because of the pressure extorted by Punjab Chief Minister Parkash Singh Badal whose Shiromani Akali Dal is an alliance partner of the BJP, the refinery was allowed by the Union government sacrificing the claims of Rajasthan.

I had a discussion with the then Union Minister Mani Shankar Aiyer. What surprised me was that a 1,082 km pipeline was laid between the Mundra port in Gujarat and Bhatinda to bring crude oil, but a refinery at Barmer, which is producing oil was denied. Then my government made a renewed effort and finally got the nod for a refinery.

But, Vasundhara Raje government is now trying to raise a big question mark on the refinery against the interest of the people of the state. Needless to say, we got the state a good deal else HPCL was not interested in putting up the refinery. The state would have perpetually benefited by way of huge revenue once the refinery is set up. But the BJP government is trying to throw a spanner in the wheel,” said an angry Ashok Gehlot.

It is learnt that the HPCL is now ready to increase the stake of the state government to 49 per cent. HPCL chairperson Nishi Vasudev had a meeting with chief secretary Rajiv Maharshi and insisted that the state governmentagrees to provide a soft loan of Rs 56,000 crore to fill the gap in funding.