Cash squeeze set to hit $70 bn Saudi Aramco JV in Maharashtra

“Saudi Aramco has been expressing concerns about the delays the refinery project is facing due to unavailability of land. Though it has not informed us of any plans to opt out of the project, the significant delay is a cause of concern," said a senior official from an oil marketing company, working closely on the project.

Amin Nasser, chief executive of Aramco, had on 9 August said the company’s 2021 capex would be significantly lower from its official guidance of $40 billion to $45 billion, to the lower end of the $25 billion to $30 billion range. This follows Aramco posting a 73% plunge in its second quarter profit and 50% drop in revenue, leading the company to effect plans to protect its balance sheet at a time of low commodity prices. Since the outbreak of covid-19 last November, crude oil prices have fallen 26%, affecting producers like Aramco.

RRPCL and Aramco did not respond to queries emailedon 28 August.

The 60 million-tonne-per-annum Ratnagiri project is a joint venture of Aramco, Abu Dhabi National Oil Company (Adnoc), Indian Oil Corp. Ltd (IOCL), Bharat Petroleum Corp. Ltd (BPCL) and Hindustan Petroleum Corp. Ltd (HPCL). Aramco and Adnoc signed in July 2018 an initial agreement to jointly develop and build the integrated refinery and petrochemicals complex taking a combined 50% stake.

Announced in December 2015, the project was to be commissioned by 2022, but delay in acquiring land has pushed the deadline to 2025 and beyond.

“Upstream oil-related capex is likely in the ballpark of $13 billion and the rest is spent on gas and downstream. With these cuts, it is natural that its international investment plans are being scrutinized, which includes refining projects," said Credit Suisse in a 25 August research note on Aramco. For major crude exporters like Aramco looking to secure markets for their output, there are several options including buying stakes in refineries or building refineries (domestically or internationally in partnership). China and India are two important markets for Aramco, where it so far has limited exposure in refining, said Credit Suisse.

While RRPCL completed a pre-feasibility study in January 2019, state-run refiners IOCL, BPCL and HPCL are investing a total of ₹100 crore to complete preliminary work on the project. IOCL is putting in ₹50 crore, BPCL and HPCL will contribute ₹25 crore each. The companies have completed the configuration study and are preparing the project report, in addition to awaiting an update from the Maharashtragovernment on land allocation.

Meanwhile, Aramco’s letter of intent with Reliance Industries Ltd (RIL) to buy a 20% stake in RIL’s oil-to-chemicals business for $15 billion is also delayed following the cut in capex and differences over valuation. The deal was first announced in August 2019 by RIL.

This June, Aramco acquired a 70% stake in Saudi Basic Industries Corporation (SABIC) from the Public Investment Fund (PIF), the sovereign wealth fund of Saudi Arabia, for $69.1 billion to strengthen its presence in the global petrochemicals industry.