Private firm’s stalled refinery project may get PSU funds

It’s not just sick fertiliser companies that the NDA government plans to revive using public funds. The Prime Minister’s Office wants public sector undertakings to bail out private sector Nagarjuna Oil Corporation Ltd’s refinery project which has been stalled since January 2012 for want of funds.

The PMO last month called the top officers of Indian Oil Corp, Hindustan Petroleum, Bharat petroleum, State Bank of India and IDBI to consider infusing Rs 5,404 crore as equity for setting up a six-million-tonne refinery in Cuddalore. Even after the three refiners — IOC, BPCL and HPCL — said they could not pick up the NOCL tab, they were told to revisit their decision taking into consideration that NOCL held nearly 2,300 acres of land with “necessary environment clearances” and that it could be designated to supply Sri Lanka. Sources said that at the meeting on March 29, the state-run refiners informed that they were not keen on investing in the second-hand NOCL refinery in the product-saturated south as they were themselves either expanding their existing units there or building a new one on the west coast.

While BPCL said investment in NOCL was “not prudent “ as it was invested heavily in expanding Kochi refinery from 9.5 million tonne to 15.5 million, HPCL said it was committed in various refinery projects, including Vizag expansion, and was “not in a position to look for new investments in refineries”. IOC said that its due diligence on the same issue in 2013 had shown that equity participation in NOCL’s refinery “do not merit consideration” even after a financial restructuring entailing a write-off of existing project cost of Rs 6,678 crore and a proportionate write-off of debt and equity.

IOC said it had informed NOCL in June 2014 that “project economics was unviable” and that there would be a massive equity shortfall even if it decided to infuse Rs 1,236 crore. “Setting up a grassroot refinery in west coast is found to be more favourable as compared to investment in NOCL Cuddalore project,” the IOC chief told the PMO.

However, sources said, the three were given a fortnight’s time by a senior PMO officer to review their decision, after which another meeting would be held, most likely with the Prime Minister. NOCL is promoted by KS Raju’s Nagarjuna group which holds 46.8 per cent stake with Tata Sons holding 24.8 per cent stake. The remainder is held by German contractor Uhde, oil trader Trafigura, Cuddalore Port Development and Tamil Nadu Industrial Development Corporation.

The project was planned in 1999 with NOCL buying 25-year-old Mobil Woerth refinery in Germany. Work was suspended in April 2000 due to limitations in funding but was restarted in 2006 with the commissioning date of March 2012. It again hit a glitch in October 2011 due to delays in equity infusion and consequent delay in debt drawdown. However, cyclone Thane in December 2011 crippled the project by damaging tanks and the port structure. There has been no activity since then and the construction workforce has left the site. Last September, NOCL said Netoil (Singapore) (PTE) Ltd was conducting due diligence to acquire the equity and take forward the project. But in February, Nagarjuna group said its board of directors at Nagarjuna Oil Refinery (which holds NOCL equity) had decided not to pursue the deal.

Netoil had agreed to acquire the project for Rs 3,600 crore and had signed a term sheet with major investors. Around 15 lenders led by IDBI and including State Bank of India have invested in the project and have sought Reserve Bank of India’s dispensation in view of the assets likely to be classified by RBI as non-performing.