French oil major pulls out of AP deal

After India-born billionaire Lakshmi N Mittal, French oil major Total SA has pulled out of the planned $10-billion refinery-cum-petrochemical project at Vizag in Andhra Pradesh.

"Total has informed us that they will like to put their participation in the project on hold for the time being," an official in the consortium led by Hindustan Petroleum said.

Mittal had in November last year 'put on hold' its investment in the project.

The global economic downturn has seen the reversal of fortunes for refiners with margins coming under severe pressure as fuel demand dropped in major markets in the US, Europe and South East Asia.

The only-for-exports 14 million tons a year refinery was being planned to target South East Asia and West Asia.

Fuel demand in Asia was at that time projected to rise by 5 million barrels a day in 10 years but has since slowed.

"The project is not going anywhere as of now. With Mittal and Total not participating, we have put the project on hold," the official said.

The five-way alliance of state-run refiner HPCL, explorer Oil India Ltd, gas utility GAIL India, Mittal and Total had done a pre-feasibility study for the project and the partners were scheduled to take an investment decision in the second half of 2009.

While the export-oriented refinery was proposed to be of the order of 14-15 million tons a year, the petrochemical plant was planned for at least one million tons capacity.

"We had not even reached the stage of deciding on equity structure of the project and now the project itself has been put on hold," the official said, adding the five companies had only signed a memorandum of understanding for looking at the feasibility of the project.

Mittal will, however, continue to hold 49 per cent stake in HPCL's Rs 18,919-crore (Rs 189.19 billion), 9-million-tons-a-year Bhatinda refinery in Punjab, scheduled for commissioning in 2012.

Mittal Investment Sarl, which holds Mittal familys interest in ArcelorMittal, Total, GAIL, HPCL and OIL had in October signed a memorandum of understanding to look at the feasibility of setting up the Vizag project.

The refinery was earlier planned for 15 million tons per annum capacity, but may be scaled down to 14 million tons.

Total was leading the project feasibility and demand studies, while GAIL was in charge of the study of the petrochemical unit. He said the exact equity structure and project finances were to be decided only after the feasibility studies.

About 2,500 acres land near HPCL's existing 7.5 million tons refinery at Vizag has been acquired for the project.

While the refinery was to be built to process sour and heavy crudes, which are cheaper than low-sulphur sweat crude oil, the petrochemical plant was to use the naphtha produced in the refinery as feedstock.