Oil Sector Current Affairs

Mongolia launches construction of its first oil refinery with $1 billion Indian aid

Mongolia has launched construction of its first strategically important oil refinery funded by India in southern Dornogovi province. The ground-breaking ceremony of long-awaited project was attended by Mongolian Prime Minister Khurelsukh Ukhnaa and Indian Minister of Home Affairs Rajnath Singh. 

Key Facts

The refinery will be capable of processing 1.5 million tonnes of crude oil per year. That is about 30,000 barrels per day (bpd). It planned for completion in late 2022. On completion, it will meet all of the nation’s demand for gasoline, diesel, aviation fuel and liquefied petroleum gas (LPG).

The cost of the refinery is estimated at $1.35 billion, and it will include a pipeline and its own power plant. Its financing is part of $1 billion soft credit line agreement between Mongolia and Export-Import Bank of India, made during 2015 official visit by Indian Prime Minister Narendra Modi.

The refinery will process Mongolia’s own crude oil, which is now sold to China. The large landlocked country wedged between giants China and Russia had produced 7.6 million barrels of oil in 2017, about 21,000 bpd, amounting to 6% of its total export earnings.

Significance

The strategically important oil refinery will make Mongolia independent from energy imports and stabilise fuel and commodity prices in its domestic markets. It is expected to boost Mongolia’s gross domestic product (GDP) by 10%. It will end country’s dependence on Russian fuel as it imported almost 1.5 million tonnes of oil products in 2017, virtually all from Russia, thus diversifying its sources of oil products from the current single source. The refinery is expected to increase Magnolia’s crude oil output, helping it to increase its export earnings. The refinery project is also considered as important milestone in bilateral ties between India and Mongolia.

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CCEA approves selling 51% stake in HPCL to ONGC

 The Cabinet Committee on Economic Affairs (CCEA) has approved sale of government’s 51.11% stake along with management control in HPCL (Hindustan Petroleum) to ONGC. HPCL will continue as PSU after the acquisition.

HPCL will add 23.8 million tonnes of annual oil refining capacity to ONGC’s portfolio, making it the third-largest refiner in the country after Indian Oil Corporation (IOC) and Reliance Industries.

Prior to the merger, HPCL will take over Mangalore Refinery and Petrochemicals Ltd (MRPL) to bring all the refining assets of ONGC under one unit. ONGC currently owns 71.63% of MRPL while HPCL has 16.96% stake in it. MRPL will be the third refinery of HPCL, which already has units at Mumbai and Visakhapatnam

Background

There are only six major PSUs in the oil sector, ONGC and Oil India Ltd being the oil producers, IOC, HPCL and BPCL are in refinery business and GAIL is in midstream gas transportation business. The rest, such as ONGC Videsh, Numaligarh Refinery Ltd, Chennai Petroleum Corp (CPCL) and MRPL are subsidiaries of one of these six PSUs.

Union Finance Minister Arun Jaitley in his 2017-18 Budget had talked about creating an integrated oil behemoth. After that oil companies were asked to give their options. ONGC had evaluated options of acquiring either HPCL or BPCL, the two downstream oil refining and fuel marketing companies. It had found that acquisition of BPCL, country’s second-biggest fuel retailer is too expensive. On the other hand, HPCL’s acquisition easier as its market cap is of Rs 58,485.55 crore and buying government’s entire 51.11% stake would entail an outgo of Rs 29,900 crore.

Comment

Acquisition of HPCL by ONGC will help the government meet 40% of its disinvestment target of raising Rs 72,500 crore in the current fiscal. More deals in the oil sector including Indian Oil Corporation (IOC) buying out explorer Oil India Ltd or Bharat Petroleum Corp Ltd (BPCL) merges with GAIL may be in the offing.

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