IOC Re­fuses Stake Sale Of­fer in Na­gar­juna Oil Project


Resource Digest - - CONTENTS -

In­dian Oil Cor­po­ra­tion has re­jected an of­fer to buy a stake in a project of the fi­nan­cially-stressed Na­gar­juna Oil Re­fin­ery and help res­ur­rect it, ar­gu­ing that the project's tech­ni­cal con­fig­u­ra­tion and fi­nan­cial bur­den were a hur­dle, ac­cord­ing to com­pany ex­ec­u­tives and of­fi­cials.

In­dian Oil took the de­ci­sion re­cently fol­low­ing a due dili­gence on the pro­posed re­fin­ery. At a re­cent meet­ing, In­dian Oil ex­ec­u­tives con­veyed this to of­fi­cials of the Prime Min­is­ter's Of­fice (PMO), sources said. More than six months back, the govern­ment had sug­gested In­dian Oil, Bharat Petroleum and Hin­dus­tan Petroleum con­sider buy­ing a stake in the Na­gar­juna re­fin­ery project. All three were hes­i­tant but In­dian Oil un­der­took a due dili­gence. It had con­sid­ered in­vest­ing in the project in Tamil Nadu more than a decade back.

Na­gar­juna Oil Re­fin­ery, which is set­ting up the re­fin­ery, is con­trolled by Na­gar­juna group, that owns about 35% of the firm. The group, led by KS Raju, also has fer­til­izer units.

“There has been no con­struc­tion ac­tiv­ity at the project site for al­most four years since the time a cy­clone hit the place, while the fi­nan­cial bur­den has been mount­ing,“said a source. The project suf­fered dam­age in the De­cem­ber 2011 cy­clone and hasn't been able to over­come its im­pact since. The com­pany has been en­gaged with mul­ti­ple po­ten­tial in­vestors but hasn't clinched a deal yet and ar­ranged nec­es­sary fi­nance to com­plete the project.

The 6 mil­lion tonne re­fin­ery, spread over 2,100 acres and in­clud­ing a cap­tive port and power plant, was orig­i­nally sched­uled for com­mis­sion­ing in April 2014 at a cost of Rs 11,500 crore. Ca­pac­ity was to be even­tu­ally dou­bled. The project has the design and foun­da­tion in place al­ready. “Un­do­ing design and foun­da­tion is very com­pli­cated,” an In­dian Oil ex­ec­u­tive said. “Had the con­fig­u­ra­tion suited us, we could have ac­cepted the project.“

“Even with con­ces­sions, it could have been a chal­lenge to res­ur­rect the project,“he said. Part of the re­fin­ery would com­prise older units re­lo­cated from Ger­many, which fur­ther di­min­ished its at­trac­tion.

The re­fin­ery is con­fig­ured to pro­duce EURO-III and IV stan­dards fuel, which es­sen­tially means it can't sell in the do­mes­tic mar­ket after April 2020, the govern­ment-set dead­line, after which only Euro VI fuel can be sold. To up­grade to Euro VI would re­quire more in­vest­ment. More­over, In­dian Oil and other state firms are them­selves en­gaged in ca­pac­ity ex­pan­sion.

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