Indian Oil Corporation will set up its first refinery outside India with an investment of up to Rs 20,000 crore (Rs 200 billion) in Sri Lanka. It will thus become the second Indian company to have a refinery abroad.

The Ruias-promoted Essar Energy owns the Stanlow refinery in the UK and has 50 per cent interest in Kenya Petroleum Refinery.

IOC operates 10 refineries in India and the capacity of its Sri Lankan refinery is expected to be 5-9 mtpa (million tonnes per annum).

"We have done the analysis and have first-hand information on the kind of refinery we plan to set up in Sri Lanka. We are in discussions with the Sri Lankan government for tax concessions, a holiday for customs and excise, and other benefits that a refinery should accrue to us.

The land will come from the Sri Lankan government," said a senior IOC official who did not wish to be named.

IOC is already present in Sri Lanka through its subsidiary Lanka IOC.

That company is the only private oil company that operates retail fuel stations in Sri Lanka.

The state-owned Ceylon Petroleum Corporation also operates such stations.

Lanka IOC has 157 fuel retail outlets. IOC's refinery, the official added, could come up adjacent to an existing refinery in Sapugaskanda commissioned 43 years ago and processing 5,200 million tonnes per day of Iranian light crude oil.

IOC plans to set up the refinery in a joint venture with the Sri Lankan government, as the route would allow it easy clearances along with the government's commitment.

"Keeping in mind its oil security, the Sri Lankan government has been looking at setting up another refinery.

"They were looking at expressions of interest from various countries.

"Since we were present in Sri Lanka, we held discussions with them. We have done the preliminary survey and have to see what kind of refinery would make economic sense," said the official.

Sri Lanka's only refinery has a refining capacity of two mtpa.

The country's fuel consumption is 4.5 mtpa, which necessitates 2.5 mtpa of imports.

Sri Lanka's fuel needs are estimated to rise to 6.5 mtpa by 2020 and 8.5 mtpa by 2030.

Instead of importing fuel, the country plans to import crude oil and process it.

"Considering Sri Lanka's fuel consumption targets for 2020 and 2030, we may look at either setting up a five-mtpa refinery or a nine-mtpa one.

"Accordingly, we'll select the type of crude to be processed," the official said. IOC accounts for 34.8 per cent of India's refining capacity. Its refining capacity is 65.7 mtpa, the largest among refining companies in India.

Lanka IOC has a market share of about 43.5 per cent.

It is a major supplier of lubricants and grease to Sri Lanka's defence forces.

"Lanka IOC is making phased investments to provide world-class quality petroleum products and services to the Sri Lankan customers," the company says on its website.

( Source: Rediff  Business)