MUMBAI, July 1: Bharat Shell, the joint venture company of Bharat Petroleum and Shell International Petroleum Corporation, may consider alternative sites to Sultanpur for the Uttar Pradesh refinery. A team from BPCL and Shell is conducting a feasibility study and the findings will be submitted in nine months.

The seven million tonne refinery will come up in the eastern part of UP as Indian Oil Corporation already has one in Mathura on the western side. Both BPCL and Shell will hold 26 per cent in the project which is scheduled to be commissioned by 2001-02.

Oil industry observers say the choice of Sultanpur earlier was largely the result of political pressures from the erstwhile petroleum minister Satish Sharma. Now that these pressures have abated, Bharat Shell has decided to take a relook at the choice of site.

The first stage approval has already been received following the submission of the project feasibility report. The detailed nine-month study will look at a host of other process parameters which will constitute approval for the second stage.

According to sources, the partners will take into account the other investments to be made for the refinery like a power plant and a crude/product pipeline. Bharat Shell will also examine the possibility of expanding capacity from the present seven million tonnes.

The partners are categoric that with per capita consumption of petro-products in UP being the lowest, there is tremendous scope here in the event of "a dramatic change in the economy." A dramatic change means the removal of the administered pricing mechanism (APM).

The power plant project will hinge on several factors. It will be viable if the quantum of fuel oil to be evacuated is in the range of 500,000 tonnes to 700,000 tonnes. Both BPCL and Shell are likely to confine their investment in the project to a nominal stake of five per cent each and leave the lion's share to another player like ABB or NTPC.

An external consultant may be roped in for the power plant feasibility study. The ultimate objective would be to sell the surplus power to the Uttar Pradesh State Electricity Board.

Bharat Shell will also study the economics of constructing a product pipeline. This will depend on the demand for petro-products in the region. If the need so arises, a pipeline from Allahabad to Kanpur will be considered.

The latest annual report of the ministry of petroleum and natural gas refers to the projections made by the ninth plan sub-group on refining. The demand for petroleum products is likely to be about 113 million tonnes by the end of the ninth plan, for which the corresponding refining capacity will be 130 million tonnes. At present, it is 60.55 million tonnes which represents the output of 14 refineries.

The additional capacity will come from Bharat Shell's seven million tonne project, HPCL-Aramco's proposed nine million tonne refinery in Punjab, IOC's nine million tonne east coast refinery with Kuwait Petroleum Corporation and the BPCL-Oman Oil Company's six million tonne refinery at Bina in Madhya Pradesh. Besides, in the private sector Essar Oil and Reliance Petroleum will have their capacities of 10.5 million tonnes and 21 million tonnes commissioned by 2000.

The proposal to set up the refinery on the eastern side of UP will be beneficial to Bharat Shell if it can get its act together. With an efficient marketing setup it could reap decent profits in a state which currently has the lowest per capita consumption of petro-products.

The only other refineries to the east (excluding the north-east) are Barauni in Bihar and Haldia in West Bengal. As for the power plant, though Bharat Shell will not have a major stake in the venture, it will take care of the problem of selling the fuel oil produced from the refinery.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.