LONDON, Mar 24 (Reuters) Oil giant BP Plc will not proceed with plans agreed five months ago to form a joint venture and build a $3 billion refinery with India's state-run Hindustan Petroleum Corp.
Ltd., an official said.
''We do not intend to take the letter of intent we signed with HPCL forward into the joint venture stage,'' a BP official told Reuters late on Thursday.
BP had signed a letter of intent in October to form a 50-50 joint venture with the Indian company, with plans to build a 180,000 barrel-per-day (bpd) refinery in northern Bhatinda and to create a network of service stations.
HCPL Chairman M.B. Lal said in November that it could agree a second similar deal with Total BP officials had said Total was in talks over joining the same project.
Oil majors have been eager to gain access to India's guarded downstream and retail oil sector -- the third-biggest in Asia -- as well as its upstream, where a series of oil and natural gas discoveries has revived exploration interest.
State refiners are also keen for foreign investment to help finance big expansion plans, part of India's vision of becoming a key fuel exporter by the end of the decade.
Royal Dutch Shell and flagship state-owned producer Oil and Natural Gas Corp. (ONGC) formed a strategic partnership in January to search for reserves in India and abroad, with the possibility of refining and coal-to-gas investments as well.
Oil majors and top producers have also been scrambling to break into China's retail market, three times the size of India's and growing many times more quickly.
But unlike China, whose industrial economy is fuelling strong demand growth, India's thirst for fuel barely rose last year due to the dominance of the services sector in Asia's third-largest economy and more consumers seeking alternative fuels such as natural gas.
The BP official did not give any further details on why it was withdrawing from the venture, but India's refiners have long complained about New Delhi's reluctance to raise regulated transport and cooking fuel prices in line with international costs.
Indian fuel prices rose about 15 per cent last year while U.S.
benchmark crude oil prices soared about 40 per cent. The government disappointed refiners last month when it failed to raise prices in its 2006/2007 budget.
For the nine months ending December 2005, the country's state-owned refiners posted a combined net loss of 97 billion rupees ($2.2 billion) -- despite global refining margins that are in the midst of their biggest boom in a decade.
Big oil companies have also proven more reluctant than Indian refiners or big OPEC producers to invest in new refining facilities, fearing that the current upcycle may crash when a slug of new capacity comes online at the end of the decade.
REUTERS SD PM1657