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Steel magnate seals India-Pakistan refinery pact

27th April 2012

ArcelorMittal (MT) project could mark the start of “reconciliation” between the warring neighbours

Trade between India and Pakistan could help ease decades of hostile relations

Billionaire Lakshmi N. Mittal and Indian oil (IOCL) company are formally opening a USD 4 billion refinery on the northern border with Pakistan as the countries that have fought three wars seek to stimulate trade.

Indian prime minister Manmohan Singh is due to inaugurate the plant on 28 April, a project of Mittal Energy Investments Pte and Hindustan Petroleum Corp. (HPCL), Bloomberg reported.

The unit, which can process 9 million metric tons a year of crude oil at Bathinda in the northern Punjab state, will help boost India’s exports and may open fuel sales to Pakistan, said Nisha Taneja, professor at the Indian Council for Research on International Economic Relations in New Delhi.

The project marks a thaw in relations between the nuclear-armed neighbours. India, which bars investment from Pakistan, is preparing to lift the ban and broaden their reconciliation. The two nations, which waged two of their wars over conflicting claims to the territory of Kashmir, have agreed in recent months to increase trade, expand travel across their frontier and grant more business visas.

“The refinery is the tangible asset that shows India is serious about trading with Pakistan and can help meet its demand for energy,” said Jagannadham Thunuguntla, a strategist at SMC Global Securities Ltd. (GLBS) in New Delhi. “Robust trade is the basic building block of a healthier relationship between the two.”

India is ready to allow investment from Pakistan, said India’s commerce minister, Anand Sharma. This followed Pakistan’s cabinet approving a plan to dismantle tariffs on about 8,000 items for imports from India by 31 December, with all restrictions being lifted by 2013, according to a statement from Pakistani prime minister Yousuf Raza Gilani.

The Bathinda project will be the first investment in crude processing by Mittal, the world’s biggest steelmaker. Mittal Energy has a venture with India’s Oil & Natural Gas Corp. (ONGC), which has offshore oil exploration blocks in Nigeria, according to ONGC’s overseas unit.

The plant used crude from Saudi Arabia and Kuwait for its trial production and will also import from Abu Dhabi, Iran and the spot market for regular operations, said K. Murali, director of refineries at Hindustan Petroleum. The refinery started processing oil in August and the entire project was commissioned “recently,” the venture said in a 29 March statement.