INTERVIEW-New IOC refinery set for approval this month

By Jonathan Leff and Nidhi Verma

NEW DELHI, May 6 (Reuters) - State-run Indian Oil Corp's (IOC) (IOC.BO: Quote, Profile, Research) board should this month give final approval to build a 300,000 bpd refinery on the east cost, although costs have risen, a senior official told Reuters on Tuesday.

But IOC's head of refineries B. N. Bankapur also warned that future such projects could be endangered if the government does not allow domestic fuel prices -- which have been increased only once since mid-2006 -- to catch up with surging crude costs.

The refinery and petrochemical project at Paradip in Orissa was initially estimated in 2006 to cost 256.5 billion rupees (about $6.2 billion at the time), but similar projects worldwide have been scrapped due to surging contractor and material costs.

Bankapur said in an interview he was confident that the board would give it the green light to move ahead with the refinery, which is planned to be one of the world's most advanced.

He said that costs have risen, but declined to say by how much.

"We are working on the cost estimates. Steel prices have gone up by around 30 percent. In the next seven to ten days we will hopefully get a board approval," he said.

"Margins are quite high so it should makes sense even today to build a refinery. If you look at the world market there is a huge deficit of products and refining capacity is not coming up anywhere except for China, and to some extent in the Middle East, and then India."

The refinery is being built to process extremely heavy crude as low as 25-26 degrees API density. It will have a Nelson complexity Index of 16.5 percent, he said.