BP and Spice to break up German refinery and move it to Calcutta

BP has entered talks with Spice Energy, the group of Indian investors behind a $1bn (£500m) plan to dismantle a refinery in Germany, pack it into containers and ship it to a site near the Indian city of Calcutta.

The talks show that BP has not abandoned its plans to build a position in India's refining and petrol-retailing business after the collapse of its $3bn deal to build a refinery with India's Hindustan Petroleum two years ago.

Spice Energy – a start-up backed by Indian businessman Sanjay Malhotra – agreed to buy the 90,000-barrel-per-day refinery from Germany's Lohrmann International, a specialist in second-hand industrial plants, in the second half of last year.

Located in Ingolstadt on the river Danube, the refinery is one of the three linked plants which make up Bayernoil, a joint venture between Austria's OMV, BP, Italy's Eni and PDVSA from Venezuela.

After the plant shuts down in June, Lohrmann will begin to take it apart piece by piece, packing it into 3,000 containers.

Spice Energy's US relocation contractor will then take over, shipping the 32,000-ton consignment to Antwerp, and then on through the Suez Canal to the Indian port of Haldia for reconstruction. Spice Energy expects to carry out the entire process in 24 months at a total cost of around $1bn. The reconstructed refinery is scheduled to begin production again in January 2010. Building a similar-scale refinery from scratch would cost more than $1.5bn and take 60 months, Spice Energy estimates.

The company has hired UK refinery engineers KBC to upgrade the plant, adding new units so it can also refine lower-quality Arab crude oil.

"We are talking to them," said a source advising BP. "If there was a deal where BP was taking a limited risk, there's no reason why we wouldn't try it."

Spice Energy's holding company for the project, Cals Refineries, raised $200m through issuing a global depository receipt on the Luxembourg Stock Exchange in November, attracting investments from Dubai Investment Group, part of Dubai Holding, and London's RP Capital. It is now hoping to raise a further $100m to $200m from a strategic investor.

"We don't want to take money from anyone," said a source close to Spice Energy. "It has to be a strategic match for us."

Talks with BP have been continuing for two months and Spice Energy is also talking to oil trading and shipping companies, the source said.