China firms eye refinery stakes

The Telegraph,  Saumitra Dasgupta, 

The Chinese oil giants are getting ready to snap up indirect stakes in India's oil refineries.

Last week, reports emerged that Chinese state-owned oil companies PetroChina and Sinopec had written to Aramco seeking to pick up a 5 per cent stake in the Saudi oil giant before it comes out with a global flotation of shares on the London and New York stock exchanges.

The deal could provide reciprocal benefits to Aramco by permitting the Saudi company to invest in the Chinese refining industry as well.

But Aramco has already been scouting for possible investments in India and has evinced interest in picking up stake in a 60-million-tonne refinery that India's state-owned refiners plan to establish on the west coast, which will rival Reliance Industries' 57 million-tonne-per-annum capacity at its two refineries in Jamnagar.

Sinopec is a behemoth with revenues of over $267 billion and ranks third on the Fortune 500 Global list for 2017.

Rosneft deal

Back in August, Rosneft of Russia had picked up a 49.13 per cent stake in the Ruias-owned Essar Oil which has a 20-million-tonne refinery in Jamnagar.

Just days after the Ruia-Rosneft deal, it emerged that CEFC China Energy Co Ltd - which ranks 222nd on the Fortune 500 Global list with revenues of $43.7 billion - had reached an agreement to pick up a 14.6 per cent stake in Rosneft.

CEFC China will be buying out a part of Qatar Investment Authority, the sovereign wealth fund of Qatar, and Glencore's holdings for a combined price of $9 billion. Glencore is a Switzerland-based miner and commodity trader.

Reports suggest that Qatar Investment Authority will retain a 4.7 per cent stake in Rosneft and Glencore roughly 0.5 per cent. The two entities had picked up a 19.5 per cent stake that they had bought only in December 2016.

CEFC will become the third largest investor in Rosneft behind the Russian government's 50 per cent and BP of the UK, which currently holds 19.75 per cent.

The CEFC China Energy stake purchase in Rosneft will give it a roughly 7 per cent stake in Essar Oil which ranks among the top 10 refineries in the world with a Nelson complexity of 11.8.

Nelson complexity measures the flexibility of a refinery to process different grades of crudes, especially ultra-heavy crude grades which are difficult to process because of the inherent impurities.

CEFC China Energy Company Ltd is a Shanghai-based private enterprise with interests in energy and financial services.

Indirect route

If these deals go through, the Chinese will have an indirect stake in Indian refiners. This is the best way for the Chinese companies - which are looking to expand their global footprint - to enter India. It may have been extremely difficult for them to obtain security clearances if they had applied to enter India through the direct FDI route.

Rosneft has already indicated that it intends to double the capacity of Essar Oil to 40 million tonnes in the next few years. Essar Oil also owns a network of over 3,500 petrol pumps across the country.

In June, three state-owned downstream players - Indian Oil Corporation, Bharat Petroleum Corporation Ltd and Hindustan Petroleum Corporation - had signed a memorandum of understanding to establish the giant refinery on the west coast at a cost of about $40 million.

Under the terms of the MoU, IOC will hold 50 per cent in the refinery, while BPCL and HPCL will get 25 per cent each.

The proposed refinery is the brainchild of petroleum minister Dharmendra Pradhan and is expected to be commissioned by the year 2022.

Meanwhile, there have been preliminary discussions with Aramco which could be roped in as a joint venture partner. It is not known how much Aramco will hold in the project.

India has 22 refineries with a total production capacity of 215 million tonnes per annum.

There are only three refineries which have joint venture partners: BPCL's 6 million tonne refinery in Bina (Madhya Pradesh) which is a joint venture with Oman Oil Company; HPCL's 9 million tonne refinery in Bathinda (Punjab) with Mittal Energy; and Chennai Petroleum Corporation's 10.5 million tonne refinery in Manali (Tamil Nadu) with National Iranian Oil Company which holds a 15.4 per cent stake in the joint venture with IOC.

Iran and India are reportedly in talks to set up a new refinery project at Nagapattanam in the Cauvery basin that will involve Chennai Petroleum Corporation Ltd (CPCL) and possibly NIOC.

The proposed capacity for the refinery is 9 million tonnes per annum and it will be set up at an estimated cost of Rs 27,000 crore. At a later stage, the refinery could be expanded to 15 million tonnes.

Meanwhile, Chevron of the US had picked up a 5 per cent stake in Reliance Petroleum Ltd with the option to raise its stake to 29 per cent after the export-oriented refinery was commissioned in December 2008. However, Chevron eventually decided to sell the stake back to Reliance Industries in April 2009. Later, RPL was merged with Reliance Industries.

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