Foreign strategic investment in India’s downstream refining and petrochemical sector is a complex process. The first part of this series explored the FDI regime, regulatory environment, land allocation, and principal risks associated with such investments. This article examines the structuring choices available to investors once a project moves beyond entry, pipeline access, funding, and secured offtake.
The regulatory treatment of commercial arrangements is a critical aspect of these investments. Pipeline rights, approvals, capital deployment, and commercial rights must each be addressed before the relevant decisions become difficult to reverse. The answer lies in structural sequencing, conditions precedent, and linking drawdowns to identifiable milestones.
A key issue is access to land, not just ownership. The Petroleum and Minerals Pipelines (Acquisition of Right of User in Land) Act, 1962, regulates pipelines connecting refinery complexes to ports and consumption centers. An entity acquires a right of user for laying pipelines, while ownership remains with the original landowner. This requires extensive due diligence and payment of compensation.
The site of the refinery may have come either through acquisition under LARR Act or allotment by a state corporation while the pipeline arrives under the PMPA, an entirely different legislation with its separate process. These processes run on different timelines, are open to objection by different sets of people, and are regulated by separate authorities, including the Petroleum and Natural Gas Regulatory Board (PNGRB).
Structuring Choices for Investors
Foreign refiners rarely invest in long-gestation projects for passive equity returns. They seek secured offtake, crude supply rights, or product marketing rights that often exceed their equity stake. These arrangements have significant commercial value, but also expose investors to potential risks and regulatory scrutiny.
The regulatory environment is complex, with multiple authorities involved. The Ministry of Petroleum and Natural Gas and the PNGRB play a role in regulating the sector. Investors must carefully consider this environment to ensure compliance with various regulations and laws, including the Companies Act, 2013, and where the investee is listed, Regulation 23 of the SEBI listing regulations as well.
Offtake agreements and supply agreements between foreign parties and Indian entities are considered related-party transactions and are subject to scrutiny under Section 188 of the Companies Act, 2013, and Regulation 23 of the SEBI listing regulations. These agreements must also comply with transfer pricing provisions and arm’s length pricing principles under the Income-tax Act, 2025 (which replaced the 1961 Act, effective April 1, 2026).
The Competition Commission of India (CCI), having already reviewed (and cleared) the transaction under merger control (see Part 1 of this series), is likely to test again here to determine if they cause or are likely to cause an appreciable adverse effect on competition. In a concentrated market like India’s downstream refining sector, such arrangements can be problematic. Public sector refiners account for roughly three-fifths of installed refining capacity, and the three PSU oil marketing companies operate around nine in ten of the country’s retail outlets.
Timing and Decision-Making
In projects of this nature, the instinct is to tackle problems as they arise. However, the difficulty lies in the fact that the bridges are not ahead but behind. The challenge is one of timing – when to make a decision. The test of timing is that moment after which a decision cannot be changed.
With land, the moment comes before siting – the land allocation regime to be chosen, the political history of the area, and the viability of a pipeline corridor. Then comes the term sheet with a detailed list of consents, which are conditions precedent. The definitive documents record decisions already taken, and the quality of legal structuring around these points will determine how much capital India can absorb as it seeks foreign investment in its refining and petrochemical buildout.
