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Explained: What is the Saudi-UAE project in India whose cost has escalated?

In September, drone attacks on two of the oil facilities managed by Saudi Aramco by Houthi rebels from Yemen had impacted Saudi Arabia’s oil exports and production and the global oil market in turn.(REUTERS/Hamad I Mohammed/File Photo)

Now $70 million project in Maharashtra will produce 1.2 million barrels/day.

A refinery project in India, set to be jointly built by Saudi Aramco and Abu Dhabi National Oil Company (ADNOC), reportedly faces an estimated cost escalation to $70 billion from the previous $44 billion. This has emerged from a Reuters news report that, in turn, cites a report by WAM, UAE's state-run news agency, that a joint economic council of UAE and Saudi officials reviewed their plans for the project on the sidelines of Crown Prince Mohammed bin Salman's UAE visit.

The project

Originally, the refinery was supposed to be built in a village in Maharashtra’s Ratnagiri district but the location was later changed to a site in Raigad district, about 100 km from Mumbai. In August, Mukesh Ambani-led Reliance Industries announced that it will be selling a 20 percent stake in its oil and chemical business to Saudi Aramco. Repeated delays in land acquisition have led to the expected year of completion being postponed to 2025.

In September, drone attacks on two of the oil facilities managed by Saudi Aramco by Houthi rebels from Yemen had impacted Saudi Arabia’s oil exports and production and the global oil market in turn.

The promoters

Saudi Aramco is Saudi Arabia’s state-owned oil company and manages the wealth the country generates from petroleum. Heavily influenced by the Al Saud royal family, Saudi Aramco is controlled by the Supreme Council for Saudi Aramco (SCSA) led by Crown Prince Mohammed bin Salman.

ADNOC, based in Abu Dhabi, is the state-owned oil company of the UAE. While Saudi Arabia holds the largest oil reserves in the world, ADNOC is believed to hold the seventh-largest.

The agreement

In June last year, Aramco and ADNOC signed a framework agreement to jointly develop what was originally called the Ratnagiri Refinery and Petrochemicals Limited (RRPCL), a refinery that would produce 1.2 million barrels per day. The two state-owned companies are responsible for building, owning and operating the refinery in collaboration with Indian oil companies such as the Indian Oil Corporation Limited, Bharat Petroleum and Hindustan Petroleum. While Aramco and ADNOC will own a 50 per cent share in the company, the remaining will be owned by the Indian consortium.

A statement issued by Saudi Aramco after the signing of the framework with ADNOC in 2018 said, “The partnership between Saudi Aramco and ADNOC marks a significant step in regional energy partnership and cooperation, bringing together two of the world’s leading National Oil Companies as strategic partners with the Indian consortium.” Saudi Aramco’s president and CEO said the refinery project was being built to ensure that India has “secure, reliable energy feedstocks for its long term prosperity.”