Cairn India Ltd has proposed a swap deal to skirt an oil export ban, by selling its high-way Rajasthan crude oil to foreign firms at higher rates and in return supplying an equivalent quantity of oil.
The nation's biggest onshore crude oil producer wants the government to allow refiners like those based in Singapore and Japanese utilities interested in high-wax crude to pick up the Rajasthan crude and replenish the exported volume with no loss to any of the parties.
Sources close to the company said Cairn India has sought government approval for a tripartite agreement wherein Barmer crude oil will go to the international market where it will get better price than the ones realised locally.
The firm getting access to low-sulfur crude oil will supply equivalent quality of crude oil to Indian refiners.
Shipping the Rajasthan oil to customers who are best equipped to process the low-sulfur crude will help Cairn India get a premium versus a 10-12 per cent discount on Brent prices that local refiners, including Indian Oil Corp ( IOCBSE -0.80 %), Essar OilBSE -1.57 % and Reliance IndustriesBSE -1.52 %, currently pay.
Cairn India had previously sought approval to export the oil but the government had rejected it as the nation is 80 per cent import dependent to meet its oil needs.
Sources said the company now says it is not seeking a permission for exports but only a swap arrangement.
The three-way deal would essentially mean Cairn India will export Rajasthan oil but the deficit at its local customer will be made up by sourcing the commodity from an overseas supplier.
Sources said the company believes the pricing of Barmer crude oil at a discount to Brent has led to USD 1.94 billion loss to all stakeholders, including the government, on over 282 million barrels of oil produced since 2009.
Most Indian refineries are designed to process cheaper, high-sulfur crude, while that produced from the Rajasthan fields has low sulfur content.
The unique nature of the Barmer crude makes it difficult to optimise it in Indian refineries and so the crude is being sold at a discount.
The government had in September 2009 designated PSU refineries to buy the Rajasthan crude at a provisional pricing formula. A discount was provided as an initial incentive.
Since the PSU refineries were not able to leave the allocated quantity of crude oil allocated to them, the government allowed Cairn the freedom to sell remaining quantity to domestic private refineries.
At present, Essar and RIL buy bulk of 170,000 barrels per day of output from Rajasthan.
Source:- economictimes.indiatimes.com
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