NEW DELHI: Cairn India has sought government's permission to sell crude oil to Reliance Industries' refinery in the special economic zone (SEZ), putting the oil ministry in a fix because such supplies are regarded as deemed exports, which are forbidden by the production sharing contract.
The oil ministry has recently allowed Cairn to raise crude oil output from its Rajasthan block by 17% to 8.785 million tonne in 2012-13 from 7.5 million tonnes last year. It plans to sell 3.25 million tonnesn to Essar, 3.96 million tonnes to the other refinery of Reliance Industries, which sells products in the domestic market, and the balance to state-run MRPL and IOC.
While this is enough to absorb the entire production, the company wants to have the option of selling crude oil to Reliance's export-focused refinery because it may have surplus oil if any buyer shuts down its refinery for maintenance, or if there is an accident. If it does not have the option, it would be forced to cut production because it has limited storage capacity, officials in Directorate General of Hydrocarbons (DGH) and oil ministry said.
"Crude oil sales agreements for the Rajasthan crude are in place with buyers for volumes in excess of 175,000 barrels per day for FY 2012-13. As a prudent operator, we explore all options to maximise sales options on behalf of all stakeholders, with the SEZ option being one of them," a company spokesperson said. The oil ministry, DGH and RIL did not respond to ET's query.
The matter is shuttling between the refinery and the exploration divisions of the oil ministry. The exploration division says "exports are not allowed as per the production sharing contract till the country achieves self sufficiency" but the refinery division recommend allowing sale to Reliance's refinery in SEZ after meeting needs of state refiners, according to an official.
"The said refinery has told the exploration branch that though in SEZ would still do value addition within the country; an alternative that is better than taking output cuts, should the circumstances so warrant," the official said.
Officials favouring sale to the SEZ refinery, say this would save valuable foreign currency. "Selling to SEZ refinery is only deemed export and not actual export," one official said. Cairn said last year it had saved $6 billion of foreign exchange by producing crude oil domestically and had contributed $2.4 billion to the national exchequer.
The official also argued that Cairn had invested about $1 billion in special pre-heated pipeline, which is cost recoverable and it is connected to the Jamnagar refinery. "Keeping this pipeline under-utilized would adversely impact government's profit share," the official added.
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