British oil giant BP Plc Thursday pulled out of the joint venture with Hindustan Petroleum Corp Ltd for building the nine million tonnes Bhatinda refinery in Punjab saying the investment climate in India did not suit new investments in refining and fuel marketing.
"BP communicated to us today that it was pulling out of the venture," a top official of HPCL said.
BP board, after considering 20 projects globally, concluded that the current investment cilmate in India was not very suitable for investments in refining and marketing.
India, which has for political reasons forced oil firms to sell fuel at below cost of production, already has surplus refining capacity. Besides, major capacity additions are planned both in private and public sector, leading to lower margins.
Last October, HPCL and BP had come together for a new refining and marketing joint venture vehicle to build a nine million tonne refinery at Bhatinda in Punjab. The two signed a letter of intent on October 13 to form a 50:50 venture to construct, operate and control the Bhatinda refinery to start with, and later cover the entire refining and marketing sectors.
The official said BP today communicated to HPCL that it was not investing in any refining and marketing project in India at this moment, but would review future opportunities.
HPCL, he insisted, would go ahead with the Rs 12,000 crore Bhatinda refinery project on its own and complete the refinery by 2010.
Industry sources said there was disagreement between the two firms on terms of the joint venture with the British giant insisting on greater control in the retailing arm.
HPCL, they said, resisted BP taking advantage of its existing retail network built over the years and wanted the joint venture to invest afresh in setting up retail business.
But BP wanted to use the existing network for entering the fuel retailing business.
As per the October MoU, BP was to assist HPCL in crude selection. The two were to form a joint venture to market Bhatinda refinery products.
The Letter of Intent provided for a broader strategic partnership for participation in greenfield refinery and/or a terminal project on east coast India; providing opportunities to HPCL to acquire refining and marketing assets that BP may identify from its overseas portfolio.
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