July 18, 2008

IOC Dumps Petrochem Plan From Paradip Project

By Sanjay Dutta

NEW DELHI: Flagship refiner-marketer IndianOil Corporation has decided to dump the petrochemicals part from its mega project planned at Paradip in Orissa and will work on only the refinery, for now. Officially, the reason given is shortage of money but industry sources doubted it, saying the move could be due to pressure from a business house that is reported to be loathe to emergence of any other big petrochem player.

The IndianOil board has given its in-principle nod for putting off the petrochemicals plant and approved funding for the refinery part only. According to company sources, at its latest meeting, the board veered to the opinion that it will not be prudent to go ahead with the entire project at one go when the company was facing cash crunch and running on borrowed money. IndianOil is losing Rs 413 crore daily on selling motor and kitchen fuels at artificially low prices set by the government.

The company reckons it will lose Rs 121,015 crore this fiscal, given the scenario where crude prices hover around $145 a barrel and the government looks unlikely to raise pump prices again in an election year.

No wonder, the board expressed the opinion that IndianOil could at a later stage explore whether the petrochemicals plant can be funded outside the company's balance-sheet. This means IndianOil could seek a partner for forming a separate joint venture or a special purpose vehicle for the petrochemicals plant, the funding for which can be organised without taking IndianOil's books.

According to the figures presented at the recent board meeting, just the refinery would now require an investment of around Rs 25,000-26,000 crore. The refinery-and-petrochemicals complex had been done with a capability of processing 15 million tonnes of crude a year. Delays over land acquisition and resolving tax issues with the Orissa government have substantially raised investment estimates to the region of Rs 50,000 crore.

(c) 2008 The Times of India. Provided by ProQuest Information and Learning. All rights Reserved.