Mittal: New ventures

New Delhi, Feb. 20: Expanding his footprint in India, steel magnate Lakshmi N. Mittal is investing Rs 3,300 crore for a 49 per cent stake in Hindustan Petroleum Corporation’s refinery at Bhatinda in Punjab.

Petroleum minister Murli Deora said the grassroots refinery will have a capacity of nine million tonnes (mt) per annum and will be set up at an investment of Rs 16,700 crore with a debt-equity ratio of 1.5:1. The refinery will be up and running by 2010.

To bring in over $700 million as equity, Mittal’s exposure is the first foreign direct investment in the downstream refining sector.

The alliance may be extended to acquisition of more refineries and joint marketing overseas. It is likely that HPCL will partner Mittal in Nigeria where he has bid for a refinery.

Mittal is foraying into both the upstream and downstream sector with expertise from oil companies through joint ventures such as the one with ONGC in the upstream sector and now with HPCL in refining.

HPCL, along with Mittal, will pursue downstream opportunities overseas in refining, marketing and gas business in which the public sector oil company has core competence. He said HPCL may also offer Mittal share in its petrochemicals project in Vizag later.

Deora said an agreement has been reached for Bhatinda under which both Mittal Investment Sarl and HPCL will hold 49 per cent each with the rest going to financial institutions. Mittal will be arriving here in a week to 10 days to formally sign the joint venture agreement. The proposal will then go to the Foreign Investment Promotion Board for approval as FDI up to 49 per cent in the refining sector does not come under the automatic route.

Petroleum secretary M.S. Srinivasan said the door is being left open for Oil India to pick up a stake in Bhatinda.

HPCL chairman M.B. Lal said work on the refinery is progressing quickly and the plant will be ready by September 2010. He expects high margins as the refinery will be capable of processing cheap high sulphur crude.

Lal said preliminary work is almost over; the land levelled and the road network in place. He said the refinery will bring crude from Mundra in Gujarat and will help the company to serve more effectively its customers in North India where it does not have a refinery.

Under the arrangement, Mittal has picked up a stake only for the refinery, while HPCL will market the products, unlike the case of British Petroleum which pulled out of Bhatinda for not getting a stake in the marketing network.