The Hindu Business Line : IOC seeks details on Cairn's crude pricing

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New Delhi Feb. 11 The pricing issue of Rajasthan crude could become a critical issue between the potential buyer, Indian Oil Corporation Ltd (IOC), and the seller, Cairn India. At a recent meeting between senior officials of the two entities, the State-owned company has stated that any commitment from it on the quantity of crude to be purchased from Cairn would depend on the economic viability of the deal.

IOC is analysing the Rajasthan crude and condensate (to check its quality and whether it is movable) at its research and development centre. Senior IOC official told Business Line that at the meeting Cairn wanted a commitment on the quantity of produce each refinery of the State-owned company would require. In turn, IOC has informed Cairn that the quantity would depend on the price at which the produce would be offered.

On the issue of discounts, the official said, the company would look for appropriate discounts to make processing of the waxy crude economically viable. Processing the Rajasthan crude that has a very high pour point and viscosity with 70-75 per cent heavy ends can only be economically viable if heavy discounts were extended, he said.

Quality

Asked about the crude quality, the IOC official said technical study showed that when stored, the wax is separated from the crude, which is a cause for concern. Rajasthan crude can be processed at refineries, which have coker unit. Currently, IOC's Panipat refinery in Haryana and Barauni refinery in Bihar have coker and the company plans to install one at the Gujarat refinery by 2009.

Cairn expects to begin producing from Rajasthan by 2009. When contacted, IOC's Director (Refineries), Mr B.N. Bankapur said, "The technical study is still going on. It needs to be examined whether the crude can be stored for 15-20 days without any difficulty."

Currently, imported crude can be stored for 15 days, while indigenously produced crude can stay for five-seven days. If the Rajasthan crude also has to be stored, it should be able to stay for 15-20 days, the same as North Gujarat crude of ONGC, which has similar traits, he pointed out.

When contacted a Cairn sources said, "We have been discussing with IOC on supply of crude. We propose to deliver it at their facility by transporting the crude to Viramgam terminal in Gujarat which is connected by pipelines to IOC's Koyali, Panipat and Mathura refineries."

Maintaining that the pricing would be benchmarked as per international practice, sources said with the transportation issue sorted out, the Indian refiners would significantly benefit from the deal. The refiners will be saving in terms of customs duty, get an advantage of credit as it would be indigenous crude, as well as save on freight cost in the range of $1.5-3 per barrel depending on where it is imported from.

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