Indian Oil Corporation (IOC) will expand its Chennai refinery at a cost of Rs 31,500 crore through a joint venture with its subsidiary and strategic financial investors, Chairman Shrikant Madhav Vaidya said on Friday.
IOC and its subsidiary Chennai Petroleum Corporation Ltd (CPCL) will hold a 25 percent stake each in the joint venture that will set up the 9 million tonnes a year refinery.
The remaining 50 percent equity would be with financial investors, he told reporters here.
"The board of the company at its meeting today (Friday) approved setting up a grassroots 9 million tonnes a year refinery at Nagapattinam in Tamil Nadu," he said adding that the unit will be built in 48 months from investment approval.
IOC plans to pull down the 1 million tonnes per year Nagapattinam refinery of its subsidiary CPCL and build a brand new 9 million tonnes unit. Asked about the participation of the National Iranian Oil Company (NIOC) in the project, he said the refinery will be set up as a joint venture of IOC and CPCL and balance with strategic and financial partners.
"NIOC continues to be an investor in CPCL," he said. NIOC holds 15.4 percent in CPCL and was previously keen to participate in the expansion project. However, US sanctions on Iran had put constraints on that. NIOC holds 15.4 percent in CPCL and was previously keen to participate in the expansion project. However, US sanctions on Iran had put constraints on that.
NIOC's investment in CPCL had been made several years back and that as such will not draw any impact of US sanctions but the impact of fresh investments in the company need could have risked sanctions. After the US reimposed full economic sanctions against Iran beginning November 5, 2018, and ended waivers six months later, India has stopped buying oil from its third-largest crude oil supplier.
Prior to the waivers ending on May 2, India paid Iran for oil purchases in rupees. These rupee payments are made into a UCO Bank account of NIOC.
The government had allowed NIOC to use the money it got in the UCO Bank account for paying for commodities Iran buys from India as well as for direct investments in Indian projects. Naftiran Intertrade, the Swiss subsidiary of NIOC, holds a 15.4 percent stake in CPCL. Whether the same money could be invested by NIOC as its share of the equity portion of the expansion project was debated.
IOC holds a 51.89 percent stake in CPCL. The expansion was to originally cost Rs 27,460 crore but is now estimated to cost Rs 31,500 crore. He said the project will be funded in a 2:1 debt-equity ratio.
CPCL also plans to build a petrochemicals plant of about 4,75,000 tonnes per annum capacity. A detailed feasibility report for the expansion project is underway. CPCL, formerly known as Madras Refineries Ltd, was formed as a joint venture in 1965 between the Government of India, AMOCO, and NIOC having a shareholding in the ratio of 74 percent, 13 percent, and 13 percent.
In 1985, AMOCO disinvested, following which the government held 84.62 percent and NIOC 15.38 percent. The government later disinvested 16.92 percent of the paid-up capital. The company was listed in 1994. IOC acquired the government's holding in 2000-01 and holds 51.89 percent stake in CPCL while NIOC has 15.40 percent. CPCL has two refineries with a combined refining capacity of 11.5 million tonnes per annum.The Manali refinery has a capacity of 10.5 million tonnes per annum and is one of the complex refineries in the country. Its second refinery is located in Nagapattinam at Cauvery Basin. This unit has a capacity of 1 million tonnes per annum. CPCL refineries produce LPG, petrol, kerosene, aviation turbine fuel (ATF), diesel, naphtha, bitumen, lube base stocks, paraffin wax, fuel oil, hexane, and petrochemical feedstocks.