IOC Refuses Stake Sale Offer in Nagarjuna Oil Project
SAYS TECHNICAL CONFIGURATION AND FINANCIAL BURDEN OF THE PROJECT A HURDLE
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.