State-run Bharat Petroleum Corporation (BPCL) said on Saturday that it expects cost escalation of $3.5-4 billion in the Total Energies-led liquefied natural gas (LNG) project in Cabo Delgado province in Mozambique.
BPCL subsidiary Bharat PetroResources (BRPL) through its Netherlands-based step-down subsidiary BPRL Ventures Mozambique holds a 10 per cent Participating Interest (PI) in the LNG project. BRPL along with ONGC Videsh (OVL) and Oil India (OIL) hold a total of 30 per cent stake in the project.
BPCL management said that the project is still under force majeure. “We are expecting maybe in another one quarter some good things can happen. The existing vendor’s contract charge is being placed. Project financing discussions are happening with the lenders. Maybe, we have to wait for one more quarter to see when force majeure is gone,” the management added.
Cost escalation
On cost escalation, the company said, “Project cost is $15.5 billion. It may be around $19 billion. Maybe, that means around $3.5-4 billion increase in project cost. So we are expecting around 19.5-20 billion project cost will happen.”
On the loss of ₹490 crore in BRPL, the management said that as on date, there are no cash generating blocks. “The ₹490 crore major expenditure this year is as Mozambique project is in force majeure. So, the borrowing cost we cannot capitalise. So, we have to take it in P&L. So that is the reason there is a loss of around ₹490 crore in BPRL and there will be equity infusion once the project re-starts,” the company said.
The project is in force majeure since 2021 due to security issues. The Area 1 block is located in the deep-water Rovuma Basin offshore Mozambique and is one of the largest gas discoveries in offshore East Africa with an estimated recoverable resources of around 65 trillion cubic feet (TCF). BPCL’s total investment commitment in BRPL is around ₹39,358 crore as of June 2024. Majority is through borrowings. It has also invested an equity of around ₹10,700 crore.
Under Project Aspire, BPCL plans to invest ₹32,000 crore to enhance upstream production with the focus mainly on projects in Mozambique and Brazil. The investments in these two countries will depend on developments on the ground.
Refinery expansion
Asked about BPCL’s plans for setting up a refinery in Andhra Pradesh, the company said that keeping in view India’s rising petroleum products consumption, it is important to develop additional capacities to meet the demand. “Today we are marketing our products at around 52.5 million tonnes (mt) of estimated sales in FY25. Every year we are purchasing from private refineries around 5-5.2 mt of products. Of this, around 2 mt is from Numaligarh Refinery as a 15-year marketing right and around 3-3.2 mt from other standalone refineries.
“So we are short in terms of products compared to our refining capacity. There is a gap of around 5.5 mt. Even if we say an annual growth of 3-4 per cent, this will lead to a bigger amount. That’s why we are exploring new refining capacity. We are exploring the east coast or other places. We have not yet concluded the location, configuration. We are still studying. Once configuration studies are over, we can communicate the calx size, location, refining capacity,” the management said.
BPCL said that it has spent ₹2,600 crore as capex in Q1 of the current fiscal year. “For FY25, BPCL has a capex of around ₹16,400 crore. Out of which the major investment is in refinery and petrochemicals at around ₹4,300 crore. At the exploration side, we are planning to have an equity infusion of around ₹2,250 crore. Marketing, mainly for pipeline expansion and infrastructure creation at marketing location, the total capex will be around ₹7,100 crore. CGD capex is around ₹2,000 crore,” it added.