Reliance to pick up 25% equity in Yemen refinery [Archives:2006/913/Local News]

January 19 2006

Mumbai, Jan. 16 )RELIANCE Industries Ltd will be picking up 25 per cent equity stake in a greenfield refinery in Yemen. Reliance is expected to invest $33.78 million (about Rs 149 crore) in the $450-million refinery project.

According to sources close to the company, RIL's participation in the project is materialising on the strength of its expertise to execute world-class projects without any cost or time overruns.

The refinery will have a capacity to produce 60,000 barrels/day of different refinery products. This roughly amounts to 3 million tpa capacity at a conversion rate of 7.3 barrels to a tonne and assuming round-the-year operations. The refinery's product-mix would include petrol, diesel, aviation turbine fuel, kerosene, liquefied petroleum gas and benzene.

The Yemen Government-owned Yemen Petroleum Company will buy most of the refinery products and sell them in the domestic market.

The refinery will receive Marib light crude oil that is currently exported from Yemen. It will have built-in flexibility to process alternative crude oils including the ones originating from Saudi Arabia, Egypt and Iran. The Yemen Government has already guaranteed supply of domestic crude over 11 years. The refinery is expected to go on stream in the third quarter of 2007.

The refinery is being developed by a start-up firm named Ras Issa Refinery Company (RIRC) in which Yemen's HoodOil Ltd is the principal promoter with 50 per cent equity. International Finance Corporation, the private sector funding arm of the World Bank, has proposed to invest $5 million representing 3.7 per cent stake in RIRC.

Private investors from Yemen and the Middle-East would subscribe the remaining shares in RIRC.

IFC loan: IFC is also considering chipping in $45-million loan to this joint venture. In its project summary on refinery, IFC says: “The founders of HoodOil and RIL have long standing ties, the groups are engaged in various commercial endeavours. The partnership with RIL is crucial for the success of the project, given that RIL builds and operates one of the largest refineries in the world and therefore has a strong operational and technical track record.”

HoodOil is the flagship company of Yemen's largest private business house, the Hayel Saeed Anam (HSA) group. Both HoodOil and RIL have participation interest of 25 per cent each in Malik. Calvalley Petroleum Inc of Canada, which is the operator of Malik, holds the balance 50 per cent interest is the asset.

Beyond equity: Though RIL is keeping its overseas business strategy close to its chest, business analysts believe that the company's participation in RIRC would go beyond mere equity investment. Thus, RIL may not only guide the joint venture in project execution but also in operating the refinery.

According to an international consultantHMR Consultants, “It is presently envisioned that a credible international company will operate the refinery with its own experienced staff until transfer of technology and skills by training on the job at Ras Issa and other refineries would facilitate HoodOil to eventually operate and manage the refinery operations based on the acquired expertise.”

The refinery will be sited at Ras Issa, which is a peninsula on Red Sea coast in Yemen. HoodOil has already acquired land for the refinery and associated facilities including a jetty and pipelines.