TEHRAN, Jan. 6 (Mehr News Agency) -- India's Essar Group, a multi-billion dollar steel-to-telecoms conglomerate, is negotiating with National Iranian Oil Refining and Distribution Company (NIORDC) to set up a new oil refinery in Iran's oil-rich southern region.
The building of a two billion dollar oil refinery in the southern part of the country is parts of an 18 billion dollar fund allocated to the development and expansion of the nation's oil refining capacity to meet its rapidly growing domestic fuel requirements.
The estimated two billion dollar plus investment in a new 300,000 barrel per day (bpd) plant to process Iran's heavy crude, would give the OPEC member's stagnant refining sector a boost and give Essar a foothold in the oil-rich country, where it is already in talks over a steel plant.
"We are studying a refinery in Bandar Abbas with Essar of India," Akhbari Shad, Director of International Affairs for the National Iranian Oil Refining and Distribution Company (NIORDC), told Reuters. Bandar Abbas is a port town in the south.
Shad declined to give more details or say when a deal might be struck.
An official with Essar Group told Reuters, "We want to strengthen our relations with Iran. We are talking to Iran for setting up a refinery, based on crude oil supplied by them."
"We are (also) in talks to buy a stake in some exploration and production blocks so that we can get gas for our planned steel plant," said the official, who declined to be named. He said production would be geared primarily to the local market.
Essar, a diversified, family-owned holdings company with interests from telecoms to construction, plans to set up three steel plants in the Middle East, including a joint venture to build a 1.5 million tons a year steel plant in Iran.
Its oil refining subsidiary Essar Oil Ltd. launched India's second private-sector refinery late last year and will ramp it up to 210,000 bpd by mid-year.
Iran is the world's fourth-largest crude oil producer but is also the second-largest importer of gasoline, due to a lack of refining capacity and rapidly growing demand, fuelled by a young population and the world's second-cheapest pump prices.
The rising cost of importing an estimated 170,000 bpd of gasoline has taken a toll on Tehran's budget, despite petrodollar revenues, Reuters said.
Although the Azadegan oilfield development deal with Japan's top explorer fell apart last year, Iran is drawing substantial interest from state oil firms in China and India, both keen to help tap the world's second-largest reserves of oil and gas.
Tehran has also been enlisting foreign help -- particularly from China -- to upgrade and resurrect its refining sector, with a goal of boosting capacity by at least one million barrel per day (bpd) by 2010. Last month, the National Iranian Oil Company (NIOC) and a consortium of Iranian firms and Germany's ABB Lummus signed a 400-mln euro ($512-mln) contract to expand the 350,000-bpd Bandar Abbas refinery, located in southern Iran.
Two new refineries are also planned in addition to the possible Essar venture.
One is a new 360,000-bpd condensate refinery due to break ground in Bandar Abbas later this year, which is being built together with a private Indonesian company. It will join another 350,000 bpd refinery that was built there in 1997.
"This (condensate refinery) is more or less an equal-sharing project, we are currently in the phase of selecting an engineering contractor for the project," Shad said, adding that the plant should be complete in three to four years.
Iran has also embarked on measures to reduce domestic demand, but abandoned plans to ration gasoline.
Mohammad Reza Nematzadeh, the head of NIORDC and deputy oil minister, told an oil journal last September that the total cost of building all three refineries would be 16-18 billion dollars.
The expansion will help raise gasoline production from the refinery to 13 million liters per day from 4.8 million liters.
Iran is also planning a 1.2 billion dollar expansion project to double the capacity of its 110,000-bpd Tabriz refinery in the second-half of next year.
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