GMR enters Kakinada refinery

Will buy ONGC’s  51% equity in likely 20mt facility

HYDERABAD: ONGC Ltd has decided to exit the proposed refinery-cum-petrochemicals project at Kakinada in Andhra Pradesh, making way for the GMR Group, which will hold 51% equity in the project that was originally to cost Rs 31,000 crore.

The project is part of Andhra Pradesh’s Petroleum Chemical and Petrochemical Investment Region (PCPIR) proposed over 600 square miles and envisaged to attract investments worth Rs 340,000 crore over the next ten years.
GMR’s entry is expected to put PCPIR on the fast-track now.

However, the refinery project is likely to cost close to Rs 40,000 crore with GMR indicating that it would like to increase the capacity upwards of 20 million tonnes to make it more viable, sources
privy to the proceedings of a board meeting today told DNA Money.

It is understood that GMR has proposed a higher capacity upwards of 20 million tonnes of refining to make the export oriented project more viable.

Reliance Industries had started its own refinery with a capacity of 30 million tonnes and was now going in for an expansion, it was pointed out at the board meeting held on Monday.

ONGC had hiked the initial proposal of 7.5 million tonnes to 15 million tonne and 4.5 lakh tonne per annum petrochemcial complex within the PCPIR to improve viablilty.

But unhappy with the AP government’s reluctance to grant tax sops to the tune of Rs 16,000 crore over eight years, ONGC had been dilly-dallying with the proposal for some time.

The two had signed an agreement for the project in September 2006.

ONGC subsidiary Mangalore Refinery and Petrochemcials Ltd (MRPL), held 46% in project, while the Infrastructure Leasing & Financial Services Ltd and the Kakinada Sea Ports Ltd were to hold 51%. The Andhra Pradesh Industrial Infrastructure Corporation (APIC) was to own the remaining 3%.

With the enty of GMR, as per the revised equity structure IL&FS and the Kakinada Sea Ports will hold 46%, while APIC will continue to have its 3% equity.

“All issues were resolved at a board meeting on Monday,” Sam Bob, principal secretary, industries department, AP, told DNA Money.

“Apart from GMR, the Hundujas and Essar were the other contenders for the project and we decided on the former seeing their past record,” Bob said.

GMR will have management control of the project and will come up with its own detailed project report based on the initial work done by ONGC.

“It is good that we now have GMR in the picture which is a local company and known for its speedy implementation of project,” said APIC vice chairman and managing director B P Acharya.

Another refinery proposed to be developed by the HPCL near Achutapuram near Visakhapatnam at the other end of the proposed PCPIR, is the second anchor for the ambitious special zone.

“The project will be undertaken through a special purpose vehicle of the GMR Holdings Group,” a GMR official said, adding that the group believes the project will help it achieve its overall growth objectives apart from delivering value and creating jobs.

It will be funded through a combination of international resources, private equity and debt, he added.

However, it was not clear what kind of financial package the state government would provide for the project considering several assesments including by SBI Capital Markets and Engineers India Ltd had raised doubts about its financial viability without sops from the local government.

It will depend on the detailed project report to be presented by GMR, Bob said, adding the state was ready to extend any help in whatever way it can.