New Delhi: Merchant banker SBI Caps is likely to submit a feasibility report on Oil and Natural Gas Corp’s (ONGC) Rs25,600 crore export-oriented refinery-cum- petrochemical project at Kakinada in two weeks.
ONGC chairman and managing director R. S. Sharma said the feasibility report on the 15 million tons capacity refinery was expected in two weeks time.
The company has asked for a slew of incentives, including free of cost land from Andhra Pradesh government to make the project viable. Besides 950 hectares of free land, ONGC also wants exemption from sales tax on sale of petroleum and petrochemical products, free power and water supply during construction phase and road and rail connectivity.
Sharma said even at the enhanced capacity of 15 million tons, rate of returns were only 10.27% which would become negative in case of a 10% rise in capital cost.
ONGC’s subsidiary Mangalore Refinery is to hold 26% stake in Kakinada Refinery Petrochemicals Ltd (KRPL), the company set up to implement the refinery project.
IL&FS will hold 51% stake and the balance would be with an Andhra Pradesh government-appointed agency.
Incidentally, automobile-to-banking group Hindujas have evinced interest in picking a majority stake in the refinery project. Former ONGC chairman Subir Raha, whose brain-child the project was, has since joined the Hinduja Group.
Sources said, ONGC has made it clear that it would proceed with the project only after getting confirmation from the state government for the incentives it had sought.
ONGC had engaged Engineers India Ltd for techno-economic feasibility study for establishing initial plan of a 7.5 million tons capacity export-oriented refinery, while Nexant was hired for doing market demand study both for export markets as well as in hinterland domestic markets.
SBI Caps’s financial appraisal of the 7.5 million ton capacity refinery found the project economically unviable as the returns estimated were below the hurdle rate.
EIL was again engaged for carrying out a detailed feasibility report (DRF) for an augmented capacity of 15- million ton as advised by merchant banker SBI Caps.
Sources said, the estimated cost of setting up a 15-million ton refinery with high complexity configuration stood at Rs25,000 crore. Besides, Rs600 crore would be needed to build a single-point mooring and the sub-sea pipeline for transportation of crude oil to the project site.
The project is to have a debt-equity ratio of 2:1 (Rs 17,000 crore debt).