The Hindu Business Line : HPCL increases refinery project cost estimate

Hindustan Petroleum Corporation Ltd (HPCL) has revised the project cost of its proposed nine-million-tonne Guru Govind Sagar Refinery from Rs 9,806 crore to Rs 15,072 crore. The debt-equity, however, is maintained at 1.5:1.

According to sources, cost has escalated owing to change in project parameters. As per the new design, the refinery will be able to handle a maximum of about heavy and sour Middle East crude.

Expecting financial closure of the project "shortly", the company sources told Business Line that as per the revised estimates, the refinery would be commissioned in 36 months from zero date.

While financing options, including initial public offering, are yet to be finalised, HPCL has committed an upfront payment of Rs 2,000 crore as equity contribution (out of the total equity component of Rs 6,000 crore) to carry out the project work.

According to sources, a total of Rs 1,605 crore will be spent on land acquisition, construction of railway sidings and payment to licensors during the first year of commissioning in 2006-07.

Incidentally, the estimated project cost does not include the Rs 2,500 crore crude pipeline from Mundra in Gujarat to Bhatinda in Punjab and product pipeline connecting Udhampur. According to sources, the project may be executed through a separate SPV.

Out of a total debt component of Rs 9,000 crore for the refinery, Rs 6,000 crore is slated to be raised from the domestic banks and financial institutions. The company had previously received commitment from six banks. However, increase in the project cost led to renegotiation of the loan agreements.

The Rs 3,000 crore foreign loan component, linked to the orders for equipment, will be finalised at the time of financial closure. The project is slated to be taken up through a 50:50 joint venture route.