JAMNAGAR: Sitting on the edge of the water in the Gulf of Kutch on India’s western shore is one of America’s dirty secrets. A mass of steel pipes and concrete boxes stretches across 33square km — a third of the area of Manhattan — which will eventually become the world’s largest petrochemical refinery. The products from the Jamnagar complex are for foreign consumption. When complete, the facility will be able to refine 1.24m barrels of crude a day. Two-fifths of this gasoline will be sent 15,000km by sea to America.

India’s biggest private company, Reliance Industries, with a market capitalisation of $33bn (£17.8bn), runs the plant. Controlled by billionaire Mukesh Ambani, whose father Dhirubhai founded the company, Reliance towers over its industry rivals, contributing 8 per cent of India’s exports. The company’s ambitions in Jamnagar have helped India move from being a net importer to an exporter of refined petroleum products. “We want to make a statement that India can be an industrial giant. Jamnagar is a refinery for the world, based out of India,” said Hital Meswani, executive director of Reliance Industries.

“In the mid-90s when this project was conceived, no one believed it would work. We were told there was too much capacity, returns were not great and every management consultant we hired told us don’t bother.” In the dizzy days of the 90s internet boom, distilling crude into diesel, gasoline, home-heating oil and aviation fuel was considered a dinosaur business, with low margins and large outlays. Oil refining was yesterday’s business, not tomorrow’s.

But Reliance says it gambled on a “paradigm shift” in the economics of the refinery business. The company, which began as a textile trader but moved into producing polyester, had noticed that India was importing millions of tonnes of refined hydrocarbons a year. Its managers projected prices creeping upwards largely due to three global oil trends. First the oil being produced from the world’s hydrocarbon reservoirs was increasingly “sour”, or heavy, full of sulphur and other impurities that older refineries could not cope with.

Second was that no new capacity was being built around the world. Environmental concerns and the rising costs of infrastructure projects discouraged the oil majors from putting up refineries in Europe and America. No new oil refinery has been built in the US since the 1980s as environmental legislation has tightened.

Third was Reliance’s belief that Asian economies would become dynamos of world growth — inevitably increasing demand for petro-products. It also saw that many European countries wanted cleaner petroleum, which required complex refining techniques. According to its strategists, commercial logic dictated that new, hi-tech refineries would be needed — and soon. Reliance, Mr Meswani says, decided to build big.

Work started in 1996 on a dry, sandy stretch in Jamnagar, about 500 miles north of Mumbai in the Gulf of Kutch with almost 100,000 workers toiling around the clock. Although the area was off the beaten track and served by just one small airstrip, supertankers could deliver by sea. The first stage was to build a refinery that could process 660,000 barrels a day. Mr Meswani and Mr Ambani lived for months on site in shipping containers to make sure the project ran smoothly. A five-star complex with villas for 2,400 families, a golf course and swimming pools were built for foreign workers. In many ways Jamnagar was a turning point for Reliance, silencing critics who claimed its talents lay with manipulating government policy to its advantage rather than creating wealth through project management skills. It also made Mr Ambani’s reputation as able to fill his father’s shoes — which he traded on when a family feud led to his younger brother Anil walking away with Reliance’s businesses in telecoms and fund management. Mukesh, or MDA as he is known, was left with the bulk of Reliance, essentially its cash-rich petrochemical arm.

Having built from scratch the world’s third-largest refinery complex, stage two in the Reliance plan is to double capacity by 2008. Other companies and nations have woken up to the potential of refining. Saudi Arabia’s national oil company, Saudi Aramco, is planning a 400,000-barrel-a-day refinery. Mexico, alarmed by how much crude oil it exports and gasoline it imports, is also planning a refinery capable of processing 250,000 barrels of crude a day.

Reliance has made the most of the shortfall in refining capacity. This year it spun off Reliance Petroleum to complete the $6bn stage two of the project, which will add 580,000 barrels a day.

Reliance Petroleum went to the markets with a share issue, raising $600m through a pre-float placement with banks and the same amount through retail investors on the Bombay stock exchange. Considered a magic brand by many in India, Reliance’s offer was 52 times oversubscribed. Perhaps the biggest endorsement was the news that Chevron, the world’s fourth-largest oil company, agreed to buy 5% of Reliance Petroleum for $300m, with an option to increase the stake to 29%.

Experts say that Reliance’s strategy is modelled on one developed east of India. “Singapore taught us about offshore refining,” said Santanu Saikia, editor of Indianpetro.com. “They showed how use of high technology and low labour costs would attract such large-scale investments.” Others worry that alternative fuels such as ethanol could slow the growth in demand for gasoline. Chandra Tripathy, who until last year was India’s petroleum secretary, its top oil official, said the impact would be limited. “I think we are looking really at just a few countries like Brazil where this would be an important factor,” he said. However, India’s laws were changing to reflect concerns about climate change, he said. “There will be tighter environmental laws for us too so that we will have to make sure our savings in terms of labour and expertise will outweigh the cost of importing the crude. It is a fast-closing window that India, not just Reliance, needs to exploit.”—Dawn/The Guardian News Service