NEW DELHI: Billionaire Lakshmi N. Mittal and an Indian oil (IOCL) company are formally opening a $4 billion refinery on the northern border with Pakistan as the countries that have fought three wars seek to stimulate trade.
Indian Prime Minister Manmohan Singh is slated to inaugurate the plant tomorrow, a project of Mittal Energy Investments Pte and Hindustan Petroleum Corp. (HPCL), the venture said in an e-mail. The unit, which can process 9 million metric tons a year of crude oil at Bathinda in the northern Punjab state, will help boost India’s exports and may open fuel sales to Pakistan, said Nisha Taneja, professor at the Indian Council for Research on International Economic Relations in New Delhi.
The project marks a thaw in relations between the nuclear- armed neighbors.India, which bars investment from Pakistan, is preparing to lift the ban and broaden their reconciliation. The two nations, which waged two of their wars over conflicting claims to the territory of Kashmir, have agreed in recent months to increase trade, expand travel across their frontier and grant more business visas.
“The refinery is the tangible asset that shows India is serious about trading with Pakistan and can help meet its demand for energy,” said Jagannadham Thunuguntla, a strategist at SMC Global Securities Ltd. (GLBS) in New Delhi. “Robust trade is the basic building block of a healthier relationship between the two.”
India is ready to allow investment from Pakistan, India’s commerce minister, Anand Sharma, said April 13. This followed Pakistan’s cabinet approving a plan to dismantle tariffs on about 8,000 items for imports from India by Dec. 31, with all restrictions being lifted by 2013, according to a Feb. 29 statement from Pakistani Prime Minister Yousuf Raza Gilani.
The Bathinda project will be the first investment in crude processing by Mittal, chairman of the world’s biggest steelmaker, ArcelorMittal. (MT) Mittal Energy has a venture with India’s Oil & Natural Gas Corp. (ONGC), which has offshore oil exploration blocks in Nigeria, according to ONGC’s overseas unit.
Hindustan Petroleum, majority owned by India’s government, operates a refinery in Mumbai that processes 6.5 million tons a year of crude, and an 8.5 million-ton facility in Visakhapatnam in the southern state of Andhra Pradesh, according to its website.
Pakistan allows imports of fuels including gasoline and diesel from India, after removing non-tariff barriers on Nov. 2, Taneja said by phone on April 26. The distance between Bathinda and the Pakistani city of Lahore is about 100 miles (161 kilometers). Reliance Industries Ltd. (RIL)’s refining complex, the world’s biggest, is located in Gujarat state, near the border with Karachi, Pakistan’s most populous city.
“This refinery will bring a quantum jump in trade and economic relations and help the peace process,” Taneja said. “The pace at which economic relations between the two nations is increasing is great. Diplomatic and political relations will now determine how far business can go.”
Hindustan Petroleum climbed 1 percent to 297.05 rupees as of 11:15 a.m. in Mumbai trading. The stock is the second-best performer on the BSE Oil & Gas index this year, rising 18 percent, compared with the 10-member Indian benchmark’s 4.5 percent gain.
The new refinery in Bathinda, operated by HPCL-Mittal Energy Ltd., in which Hindustan Petroleum and Mittal Energy own 49 percent each, comes at a time other Asian refiners are expanding capacity, resulting in lower profit from processing crude as economies from China to Europe slow. PetroChina Co. (857) is adding capacity at its Hohhot plant and plans to start a new plant in Pengzhou this year, the International Energy Agency said.
The average benchmark profit in Singapore that complex refiners, capable of processing inexpensive and heavy grades of crude, are making from turning Dubai crude into fuels this year is $4.50 a barrel, compared with $5.17 a barrel last year, according to data compiled by Bloomberg.
Reliance Industries reported $7.60 a barrel profit from refining in the three months ended March 31, 17 percent lower than a year earlier, the company said April 20.
Total trade between India and Pakistan was $2.7 billion in the year ended March 2011, according to data on the Indian trade ministry’s website. Sugar was the biggest export from India to Pakistan, followed by cotton, according to the data.
Pakistan’s fuel imports rose 24 percent to 9.8 million tons in the nine months ended March 31 from a year earlier, according to government data. The nation spent $7.4 billion for the purchases, 58 percent higher than a year earlier.
Pakistani President Asif Ali Zardari and India’s Singh pledged to find “practical and pragmatic solutions” to differences following their “constructive” talks when Zardari came to India on April 8 in the first visit by a Pakistani head of state in seven years.
India’s crude oil refining capacity exceeds demand as companies including Indian Oil and Essar Oil Ltd. (ESOIL) plan further expansions. Indian Oil is building a 15 million ton plant in the eastern state of Odisha and Essar Oil, the second-biggest non- state processor, will expand its 18 million ton plant to 20 million tons by September. Hindustan Petroleum also plans to add a 15 million ton plant in Maharashtra, according to K. Murali, director in charge of refinery operations.