Build refinery but do not sale in the Indian market because govt. does not like to reduce taxes lest it may be cheaper to the public and the refineries may become viable. The oil companies are not allowed to increase the price (theoretically yes) at domestic market, hence more you sell more you lose. Then Why to build a refinery if not allowed to market, and worst why
 should any international company make investment in India for building refinery and infrastructure.Margins are good in refineries but if the product to be marketed at a loss, what is the use? Refiners have been enjoying high margins once again in the last few years. The oil industry had correctly predicted that the world crude oil slate was getting both heavier and sour. At the same time petroleum product specifications have been becoming more stringent in terms of emissions, especially in Europe and the U.S. but also in some developing countries like India.Timely investment by major refiners to process heavy and sour crude oil to meet new product specifications while taking advantage of lower priced heavy and sour crude oil helped to raise margins.

Dr. Bhami Shenoy stated in his paper, In comparison to more sophisticated refineries in the US and Europe, Indian refineries have less upgrading capacities as well as less ability to handle extra heavy and sour crude oil. Still Indian refineries are able to meet the light product requirement and are net exporters of gasoline, diesel, naphtha and kerosene. But this has come at a cost because they have to depend upon processing light or medium heavy crude oil, whose prices have been rising.If a level playing field is given for refiners and importers of products, Indian refineries may be utilized less. Singapore and the Middle East have built export refineries, which have ready access to crude oil. The utilization rate in the Middle East was below 85% in 2004. There is no special advantage to India in constructing new refineries for export. On the other hand, new refining capacity may be needed if India wants to meet its oil demand domestically.

Investors who are interested in constructing refineries in India may not face as many  environmental restrictions as they are likely to face in Europe or the US. However they may face far more restrictive environmental restrictions in comparison to the Middle East and Singapore or any other South East Asian country. But India has advantages over these countries in terms of getting qualified technicians and engineers to operate these refineries at considerably lower cost and also in a far more sophisticated manner using the latest refinery optimization models.As India adds to refining capacity, it should simultaneously pay more attention to improve infrastructure to import crude oil and transport petroleum products as much as possible using the far cheaper and safer alternative of pipelines.Many Indian ports do not have the required capacity to unload from large crude tankers to minimize the transportation cost. Where pipelines are not possible, the railway system needs to be improved to move products with minimum delays and also adequate storage tanks need to be constructed to receive these products.

In current world refinery scenario, margins are very attractive and are likely to remain so for at least some more years. In this background, properly designed refineries with ability to process heavy and sour crude to maximize middle distillate products to meet Indian needs will get above average returns even if the government removes the tax advantage by equalizing customs duty on crude oil and petroleum products.However, note that the current attractive environment will disappear as more upgrading facilities are built globally to process heavy and sour crude into light products. This will eventually push the price of the heavy and sour crude up, squeezing the refining margins. A coincident decline in demand, if it occurs, will certainly collapse the margins to dismal levels of the late 1990s.Indian companies have been trying to set up new refineries at almost every port. Some of the development during the month are given below :

ONGC is going ahead with the preparatory work needed for setting up an port-based refinery and special economic zone and, in spite of the teething troubles in obtaining the land, the corporation is confident of executing the project, according to sources.ONGC signed a memorandum of understanding with the State Government for setting up the refinery and the port-based SEZ.Mangalore Refineries and Petrochemicals Ltd and Kakinada Seaports Ltd, which is operating the Kakinada deepwater port are the other consortium members. Two special purpose vehicles have been set up for the two projects - Kakinada SEZ Ltd and Kakinada Refineries and Petro-chemicals Ltd. Steps are being taken to create the necessary infrastructure. Currently , a team of experts is here from TSG Consultants, conducting a survey for the development of infrastructure.

The land acquisition process for the two projects has not been smooth till now. Initially, there was a lot resistance from the farmers who had to part with their lands. But they were persuaded later. The authorities have completed the formalities for land acquisition, but the elections to the local bodies have delayed the process, say officials.The KSEZ could directly purchase 2,500 acres of land from farmers at Rs 3 lakh per acre. Though the Government has notified 8,000 acres as required for the SEZ, finally it might exceed 10,000 acres, as 2,000 acres is needed for the refinery. Till now, 1,800 acres has been acquired in Komaragiri, Moolapeta, Ramanakkapeta, Ponnada and Srirampuram panchayats and 800 acres in Korada, A.V Nagaram and K. Perumallapuram panchayats of Thondangi mandal.

Though it is not yet clear where the refinery will be located, it is likely to be in the Kakinada rural mandal, in the vicinity of the port.It is now estimated that the land acquisition process will be completed by October. The Kakinada Refineries and Petrochemicals Ltd has called for applications, online, for large-scale recruitment.

 The Rs 35,000 crore revised refinery-cum-petrochemicals project of the Indian Oil Corporation (IOC) at Paradip in Orissa will be completed by 2010-11, the Union Minister for Petroleum and Natural Gas, Murli Deora has said.The Paradip project was high on IOC’s priority and over Rs 1,000 crore would be spent immediately on site development work, Deora assured Orissa Chief Minister Naveen Patnaik at New Delhi yesterday.Patnaik, who called on the union minister, thanked him for upscaling the project from a 9 mmtpa petroleum refinery to a 15 mmtpa refinery-cum-petrochemicals complex and suggested that the IOC should act as the anchor tenant for promoting a petrochemicals and petroleum refinery investment region at Paradip, an official release here said.Both Deora and Patnaik agreed to put in place a high level joint task force for tis purpose, it said.The chief minister also requested for intensifying ONGC’s oil exploration activity in the state.

India’s state-run Hindustan Petroleum Corp Ltd will set up a new refinery with a foreign partner on the country’s east coast to process 300,000 barrels per day (bpd) of oil, the company’s Chairman M B Lal said. "We are thinking of at least 15 million tonnes a year, along with a petrochemical complex near Vishakhapatnam," M B Lal said.Mr Lal said in Bhatinda, where HPCL will build another new refinery which will process 180,000 bpd of crude oil. HPCL’s Bhatinda refinery as well as the proposed venture near Vishakhapatnam will be built jointly with a foreign partner, Mr Lal added."We will definitely go for partners. It will be global players," Mr Lal said. The firm already has a refinery in the coastal city but the fresh investment would be at a new site. The construction schedule is yet to be decided. HPCL officials said the company was in talks with several global firms such as Saudi Aramco, Petronas, BP and France’s total.

Bombay-based HPCL is also in the race to build a refinery in the north western state of Rajasthan to process crude oil discovered by Britain’s Cairn Energy. State-run explorer Oil and Natural Gas Corp Ltd is also keen to build the refinery in Rajasthan with Cairn Energy. A decision on which the firm will construct the refinery, rests with India’s oil ministry.India already has a surplus refining capacity and has been exporting oil products since 1999, when Reliance Industries Ltd set up its Jamnagar refinery that now processes 660,000 bpd of crude oil Reliance Industries announced this month it would double its refining capacity by 2008 with an investment of $5.8 billion. A shortage of global refining capacity after years of underinvestment has helped crude oil prices scale $66 a barrel this year and extended the cyclical industry’s two-year profit boom after almost a decade of mediocre returns.

If demand continues to expand at about two per cent a year, as predicted this year and the next, refiners would have to add over 10 million bpd of capacity by 2010 just to keep up. Reliance is contributing barely five per cent of that.Building new refineries are essential to meet domestic demand but unless a level playing field is provided to market the product the country may not attract large investment.The recent experience of Reliance and Essar who set up large retail network in record time had to cut sorry face infront of public and the dealers who made investment are put into difficulty. This is just because the PSU oil companies do not increase the price or govt. does not reduce the tax or govt. does not subsidise the private marketers.