Oil and Natural Gas Corporation, with 30 per cent share in British firm Cairn Energy's commercial oil and gas discovery in Rajasthan, is planning to set up a 3-5 million tonne refinery.

The public sector company is working on acquiring Cairn Energy's stake in the Mangala oil field, considered to be the biggest discovery in India after Bombay High.

The refinery, which will entail an investment of up to Rs 5,000 crore (Rs 50 billion), is expected to process crude available from discoveries in Rajasthan.

Sources involved with the plan said the refinery was likely to be set up with a capacity of 3 million tonnes and would be later enhanced to 5 million tonnes.

"The details will be finalised only after a feasibility study is conducted," said an ONGC executive. Despite attempts, ONGC chairman and managing director Subir Raha could not be contacted for comments.

Cairn Energy is involved in exploration across a 4,970 square km block in Rajasthan's Barmer region. It holds 100 per cent of the block, while ONGC has the rights to 30 per cent of any development area resulting from a commercial discovery.

The first stage of commercial oil production from RJ ON 90/1 block, held by Cairn, is scheduled to commence in the first quarter of 2005.

A number of companies like Cairn Energy, ONGC, Oil India Limited, Essar Oil, Polish Oil and Gas Company, and Phoenix Overseas, are busy exploring in Rajasthan. A total of six blocks are under exploration in Rajasthan in addition to ONGC's and OIL's nominated blocks.

ONGC had started exploration for oil and gas in western Rajasthan in 1954 and Oil India Limited in 1983. Cairn had in January announced the discovery of 450 to 1,100 million barrels of good quality light crude oil at the well, N-B-1, in block RJ-ON-90/1 in northern Rajasthan.

Earlier this year, ONGC had acquired Cairn Energy's stake in two fields in the Gulf of Cambay in a swap deal.

ONGC has a majority stake in the Mangalore Refinery and Petrochemicals Ltd, and has been planning to enter the retail market.

The plan has, however, not found favour with the petroleum ministry, which wants ONGC to confine its activities to exploration and production.