After teaming-up with Reliance Industries, state-run gas utility GAIL India today signed an agreement with refiner Indian Oil Corp to explore possibility of setting up a Rs 10,000-crore (Rs 100-billion) petrochemical plant at Barauni in Bihar.
The proposed chemical plant will use 2,50,000 tons of naphtha produced by IOC's Barauni refinery and the natural gas that GAIL plans to bring from eastern offshore and imported LNG through the planned Jagdishpur-Haldia pipeline.
"We (GAIL and IOC) have today signed a memorandum of understanding for exploring the possibility of setting up of cracker complex including downstream derivatives at Barauni," GAIL chairman and managing director U D Choubey told reporters after inking the agreement.
The two firms would prepare a techno-economic feasibility study by the fiscal year for the unit that would take up to five years for construction.
"Naphtha prices in India and world-over are on a downturn. It is selling below fuel oil (price) as demand is not there. We are forced to export naphtha and the proposed unit will enable us to extract value from the fuel," IOC chairman Sarthak Behuria said.
Project structure and equity participation has not yet been decided. "It could be a 50:50 joint venture between GAIL and IOC... it may also be a public-private partnership," Choubey said indicating that the alliance had room to induct a strategic partner.
A 130-km spur line from Gaya to Barauni would be laid to transport gas to Barauni fertiliser plant, IOC's refinery and the proposed petrochemical unit. GAIL's Jagdishpur-Haldia pipeline would transport gas found in eastern offshore.
The MoU with IOC is part of GAIL's vision to make petrochemical its second largest revenue earner after natural gas transmission and marketing.
The company had recently signed an agreement with Reliance Industries to explore possibility of setting up a mega petrochemical plant in North Asia and Central Asia.
"We have shortlisted three nations," Choubey said refusing to give any details.
GAIL has already announced plans to double its Pata petrochemical plants capacity to 8,00,000 tons in 3-4
Choubey said the proposed unit at Barauni would be of a minimum 3,00,000 tons capacity.
IOC and GAIL agreed to constitute a joint working committee consisting of two representatives from each company for undertaking techno-economic feasibility study for the project, including feedstock (naphtha and natural gas) management.
GAIL would assess the prospect of natural gas availability from the Krishna-Godavari basin fields, including the potentiality of rich gas (natural gas containing ethane and propane) to be used as part of the feedstock for the unit.
IOC would assess the prospect of availability of off-gas and naphtha not only from Barauni refinery but also from other operating refineries of the company, to be used as predominant feedstock for the proposed project.
Choubey said the polymer market was growing rapidly in India and the growth rate registered in the recent times has been significant.
Behuria said the investment in Barauni chemical plant had no co-relation with the decision to defer investments in the petrochemical complex that was to come up alongside Paradip refinery in Orissa.
"The Paradip refinery is being done on IOC balance sheet and considering fund crunch we face because of losses on fuel sales, we had decided to defer investment in the petrochemical plant at Paradip.
"Refinery at Paradip will come up by 2011-12 and petrochemical plant will be taken up later," he said, adding Barauni project was to be done as a joint venture project and IOC's share of investment would not exceed more than Rs 2,000 crore (Rs 20 billion) over 3 to 4 years.
"We have capability of finance such an investment," he said.
"There is a potentiality for considering a mixed feed cracker complex based on naphtha and natural gas at Barauni based on the raw materials available from Barauni refinery and other nearby refineries, besides the prospect of natural gas source in eastern region," Choubey said.
India is amongst the fastest growing petrochemical markets in the world. It has a per capital consumption of 4.5 kgs, about half of the world average.
