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The Ruia brothers and their bankers are trying to cobble together a complex deal, to be signed on the high seas, to bring down the borrowing requirement of Essar Energy's Jamnagar refinery by $600 million. If it fructifies, the transaction will be a first of its kind in India.

The Indian firm has taken a leaf from its UK-based refinery subsidiary Stanlow Refinery whose crude inventory and finished products are managed by the British bank Barclays under a similar deal. 

Encouraged by the significant cost benefits, Essar Energy is now in active discussions with a team of MNC banks that will own and manage its multi-million-barrel crude inventory. If lawyers and bankers give the green signal, the deal will be cut on the high seas while the crude is being ferried from Latin American coast to Gujarat. 

For Essar Energy, it takes almost 35 days for the crude it buys from Latin America to reach Jamnagar. The contours of the deal suggest that banks will hold the crude oil on their books and pass on the inventory to the refiner just before it is processed. 

The Stanlow Refinery, which Essar acquired for $350 million, has saved 40% interest cost on working capital loans by letting banks 'own' the crude and the refined products. 

"We are talking to a number of banks...mostly foreign banks," Naresh Nayyar, CEO, Essar Energy told ET. "I'm not ready to give any timeline. We are exploring it, and this is probably the first time any Indian company is exploring this possibility," he said. Essar's local refinery capacity is about 20MMTPA and refining complexity has been raised to 6.1-11.8, allowing it to import crude cargoes from oil rich Latin American countries.

The deal with Barclays had helped in removing the working capital debt, substantially reduce the capital intensity of the Stanlow Refinery and improve returns, said Andrew Turpin, spokesperson for the UK subsidiary, Essar Energy Plc. Post the deal with Barclays, the refinery has lowered its working capital by $824 million. 

"It improves operating flexibility, particularly in high oil price environment and also allows Essar Oil UK to substantially de-risk itself from the impact of international oil price fluctuations on the inventories owned by the company - previously crude was held for average 19 days on site, now it is delivered "just in time" by the bank and priced daily," Andrew Turpin, spokesperson for Essar Energy said. 

But in India, oil refiners such as Essar cannot straight away replicate the Stanlow deal because of local tax laws. Since there is tax implication every time a transaction is closed, Essar is putting together a deal that involves sale and purchase with banks outside the Indian territorial waters. 

While the pact with Barclays covers crude as well as the final products, the deal being negotiated for the Indian refinery will be restricted to the crude inventory. 

The compulsions behind such deals are high crude price, settling above $100 a barrel, and the huge expenses involved running a large refinery. 

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