Soaring raw material prices have raised the cost of Bharat Petroleum Corporation's new refinery at Bina by 20%, but the new unit will deliver impressive refining margins of USD 11 a barrel, more than double the margin of its other units in recent months.

Mr SK Joshi director for finance of BPCL told ET that "When the project was first commissioned in 2006, we had a planned CAPEX outlay of 10,400 crore, which was later revised to 11,300 crore and now stands at a little over 12,000 crore, primarily due to an increase in raw material costs.”

The Bina refinery has had a chequered past as the project was first proposed around 10 years back and then got stonewalled due to lack of environmental clearances. The inordinate delays in getting the requisite clearances took a toll on BPCL's joint venture partner Oman Oil Company, which reportedly decided against any additional investments in Bina, and BPCL had to increase its stake in the project from 26% to 50%. Currently, the Oman Oil Company holds a 26% stake in Bharat Oman Refineries, which owns the Bina refinery, while BPCL owns the rest.

While discussing the project's current production schedule, Joshi said the deadline for starting commercial production from Bina has been revised from the earlier date of February 15 to April 1, 2011. He said that "The company has already started trial production for certain products and all the units of the refinery have been commissioned sequentially. Full commercial production should start by April.”

The refinery is slated to have an annual capacity of 6 million tonnes and nearly half of the refinery's output will constitute diesel. It will also produce 0.6 million tonnes of petrol and jet fuel each and these will be sold within the country.

On the raw material front, Mr Joshi added that "Crude is being imported mainly from Saudi Arabia, we have contracted 0.5 million tonne crude to start the refinery and we have laid a 1,000 km pipeline from Vadinar in Gujarat to transport the this.

Discussing the expected margins Mr Joshi said that "Currently our product prices are also increasing by the same proportion as crude prices. Therefore, our refinery margins are getting better. At Bina we are hoping to achieve a margin of US 11 a barrel given our location advantage and our pipeline strength." Although he did add a cautionary corollary that refining margins are cyclical by nature.

Discussing the company's plans to raise capital for the refinery through a public offering, Mr Joshi said that "We will finalize our plans once commercial production starts and the entire process could take another 10 to 15 months."

(Sourced from ET)