After the UK-based Hinduja group, Oil and Natural Gas Corporation's proposed Rs 26,500-crore (Rs 265 billion) refinery at Kakinada, Andhra Pradesh, has found new suitors in Reliance Industries and Essar Oil.
This is despite ONGC maintaining its stand that the refinery is not financially feasible unless the Andhra Pradesh government gives it more incentives.
The 15-million-tonne-per-annum refinery will be implemented by Kakinada Refinery and Petrochemicals. While ONGC's subsidiary Mangalore Refinery and Petrochemicals holds 26 per cent stake in KRPL, IL&FS holds 51 per cent and the remaining stake is held by the Andhra Pradesh government.
"Essar Oil, RIL and Hindujas have been in discussions with the Andhra Pradesh government for a stake in the Kakinada refinery," said a top ONGC executive.
Both RIL and Essar Oil operate mega refineries in Gujarat. The executives of the two companies said they were evaluating stake purchase in the Kakinada refinery.
The refinery is proposed to be set up in a special economic zone being developed by ONGC in Kakinada. Land for the SEZ has already been acquired.
"The fact that the refinery will come up in an SEZ is attracting interest from various companies since it will get various tax incentives," said an analyst with an advisory firm.
Companies keen on a stake say the refinery is feasible as the products can be exported to Southeast Asian countries. Kakinada also has a port.
Moreover, there are plans to construct a one-million-tonne-per-annum petrochemical plant alongside the refinery. "The petrochemical plant will add value as the petrochemicals margins are expected to remain strong till the end of 2013," said a RIL executive. He expects the margins to remain positive even during the expected downturn in the petrochemical industry after 2013.
ONGC has, however, sought incentives worth Rs 16,000 crore (Rs 160 billion) from the Andhra Pradesh government over eight years to make the refinery financially viable.
ONGC wants exemption from sales tax on the sale of petroleum and petrochemical products, free power and water supply during the construction phase, and road and rail connectivity.
ONGC, which has often been asked by the petroleum ministry to focus on its core business of exploration and production, says that it is only the incentives, along with the petrochemical plant, which will make the refinery feasible. The Andhra Pradesh government, however, has been lobbying with the central government saying the refinery is feasible.
The ONGC executives say the rate of return on investment would be 10.27 per cent at a capacity of 15 mtpa and would turn negative in case of a 10 per cent rise in the capital cost.
