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In a significant development, Saudi Arabia has made it clear that future investments in India’s refinery sector are contingent upon resolving the long-standing issues surrounding the West Coast Refinery (WCR) project. This condition was conveyed by Saudi officials to their Indian counterparts during discussions earlier this year.

The Background

The WCR, also known as the Ratnagiri Refinery & Petrochemicals project, was initiated in September 2017 as a joint venture between Bharat Petroleum Corporation Ltd (BPCL), Indian Oil Corporation (IOC), and Hindustan Petroleum Corporation Ltd (HPCL). Saudi Aramco, the state-run oil giant of Saudi Arabia, has committed to investing a staggering $50 billion into this 60-million-tonnes-per-annum project, which also includes a petrochemical facility.

However, the project has faced significant delays due to various challenges, particularly related to land acquisition and site suitability. Originally proposed to be located in Maharashtra’s Ratnagiri district, the project has seen its location and overall cost remain uncertain, with no final timeline established for its completion.

The Current Situation

In May 2024, a delegation from Oil & Natural Gas Corporation (ONGC) and BPCL visited Riyadh to propose two new refinery projects—one in Gujarat by ONGC and another in Andhra Pradesh by BPCL, both with a capacity of approximately 10 million tonnes each. These proposals were presented to Saudi Arabia’s Ministry of Energy and Saudi Aramco.

However, in June 2024, the Saudis informed India that the WCR project was a key priority for them and that no further discussions on the new refinery projects would take place until the WCR issues were resolved. This stance was further emphasized during discussions between Saudi Prime Minister Mohammed bin Salman (MBS) and Indian Prime Minister Narendra Modi during MBS’s state visit to India in September 2023. To address the pending issues, it was decided to establish a High-level Task Force (HLTF), which would adopt a top-down approach to resolve all the challenges, as several rounds of technical discussions had previously failed to yield significant results.

The Link to Double Taxation Avoidance Agreement (DTAA)

The resolution of the WCR project is also intricately linked to the Double Taxation Avoidance Agreement (DTAA) between Saudi Arabia and India. The Saudis have been pushing for tax exemptions on incomes derived from their substantial investments in India, seeking relief that would encompass all incomes derived by the state and its wholly-owned entities, including Saudi Aramco.

India, on the other hand, has maintained that tax exemptions to sovereign entities can only be granted through domestic laws, such as Section 10 (23FE) of the Income Tax Act, rather than through the DTAA. Any other exemptions outside the scope of this section would require amendments to domestic laws.

Conclusion

The fate of Saudi Arabia’s future investments in India’s refinery sector hinges on the resolution of the WCR project. The establishment of the High-level Task Force marks a strategic step towards addressing the pending issues, but whether it will lead to a successful resolution remains to be seen. The ongoing discussions and negotiations will play a crucial role in determining the future of these significant investments.

Disclaimer

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