NEW DELHI: 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 OilBSE 1.60 % 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 PetroleumBSE 0.08 % and Hindustan PetroleumBSE 0.83 % 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 the Nagarjuna group that owns about 35% of the firm. The group, led by K S Raju, also has fertilizer units.
“There has been no construction activity at the project site for almost four years since the time cyclone hit the place, while the financial burden has been mounting,” said a source. The project suffered damage in December 2011 cyclone and hasn’t been able to overcome its impact since. The company has also been engaged with multiple potential investors in the past but hasn’t clinched a deal yet and arrange 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. The capacity was to be eventually doubled. The project has design and foundation in place already.
“Undoing the design and the foundation is very complicated,” an Indian Oil executive said. “Had the refinery’s configuration suited us, we could have accepted the project.”
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 standard would require more investment.
