Public sector exploration major Oil and Natural Gas Commission (ONGC) and Andhra Pradesh government Saturday signed a memorandum of understanding for setting up an export oriented refinery and a Special Economic Zone with an investment of Rs.65 billion.

The projects will come up the at port city of Kakinada in East Godavari district. The refinery will cost Rs.55 billion while the Special Economic Zone (SEZ) will see an investment of Rs.10 billion.

The MOU was signed by Chief Minister Y.S. Rajasekhara Reddy and ONGC chairperson Subir Raha.

The Mangalore Refinery and Petrochemicals Ltd, a subsidiary of ONGC, Kakinada Sea Ports Limited and IL&FS will also have equity in this project, the quantum of which will be decided later.

The state government will have only token equity investment in both the refinery and the SEZ projects.

Raha said the work on the refinery would begin by the end of this year and would be completed in 36 to 40 months.

It will be a model refinery in the country with a capacity of five million tonnes, which would later be increased to 7.5 million tonnes, he said.

He added that the products from the refinery would largely be exported to the European markets.

The chief minister said this was the largest investment in the state in the last decade. He said the state was providing 1,000 acres of land for the refinery and 10,000 acres for the SEZ.

ONGC is one of the companies that are exploring oil and gas in the Krishna-Godavari basin of Andhra Pradesh.

He said with the kind of gas availability projected, the Kakinada SEZ would have great potential for attracting investments in metallurgical, particularly non-ferrous industry, and in fertiliser production, besides generating electricity.

The chief minister recalled that Petroleum Minister Mani Shankar Aiyar had announced both the projects July 18.