Essar Ltd, a leading corporate house of India, is planning to set up a petrochemical complex at the site of its refinery as a downstream project. The $3.6 billion Indian conglomerate is also considering further expansion of its refinery capacity from 12 million metric tones per annum (MMTPA) to 27 MMTPA.

Said Ravi Ruia, vice-chairman, Essar Ltd. "We are aggressively examining the feasibility of undertaking Petrochemicals project at the refinery site to add further value to our investments in the refinery."

"During the next two years, whilst the balance portion of the work on Phase-I of the refinery is being completed, alongside management is also working on getting Phase-II - expansion of the refining capacity form 12.0 to 27 MMTPA-started, Ruia said.

The feasibility studies for this have already been carried out and preliminary discussions on the implementation strategy are on. This expansion will come at comparatively low cost because of certain pre-investments being made in Phase-I, Ruia said.

Although most of the refineries in the far East are facing a problem of squeezed refining margins, refiners in India and China are on expansion spree. Explaining the rational behind going for further capacity expansion when others are cutting down their capacity, Essar chief said the refinery margins in India are in positive and much higher compared to other places in the region. Margins are higher, according to Ruia mainly because of the duty protection available (differential between duty on crude and products, on weighted average basis, is around 8%) for the refiners.

Most of the Indian refineries are currently generating margin in the region of $3.5 to 5 per barrel. This is one of the major reasons why a number of refiners are going for further capacity expansion and Essar is also considering going the same way, Ruia said.

According to Ruia, with decontrol of petroleum product prices in India, retailers as such see no difficulty in charging market-determined prices. If the global prices are high, this will be reflected in the selling price as well, said he.

Essar is also in retail petroleum product marketing in India. The company has just started marketing high speed diesel (HSD). With the commissioning of its Retail Outlets over the next few months - Essar expect to commission 50 to 60 outlets by March '04 - we will also start marketing motor spirit (MS).

According to Essar's estimate, pending the commissioning of its refinery in 2005, it would import approx. 2.5 to three mmt of HSD and between 0.25 to 0.30 MMT of MS. Cost would depend upon prevailing prices in the international market.