RIL plans Rs40,000 cr investment

RIL plans Rs40,000 cr investment

Ahmedabad / Mumbai: India’s most valuable company, Reliance Industries Ltd (RIL), plans to invest in excess of 40,000 crore by 2014 to expand the world’s biggest refining complex it runs in Jamnagar, Gujarat, according to two RIL executives familiar with the plan.

The company, controlled by billionaire Mukesh Ambani, has earmarked 16,000 crore to set up a cracker unit as part of a proposed petrochemicals project in Jamnagar. The cracker will produce ethylene, propylene, low-density polyethylene and monoethylene glycol that have a wide range of applications in industry, said the two persons. Both declined to be named.

Also See Expenditure Break-up (PDF)

A further 15,000 crore will be invested in a coke gasification plant that will fuel power plants in the complex. It plans to spend 6,850 crore on a plant to produce paraxylene, used in the production of fibre and film, and a unit to manufacture butyl rubber that has applications in industries, including adhesives, agricultural chemicals and personal care products.

Various supporting and ancillary projects would cost 4,000 crore. They include a fifth crude distillation unit (CDU) that would utilize crude from Cairn India Ltd’s Mangala oil field in Rajasthan. A CDU is a front-end process in the refinery to separate crude oil into products such as naphtha, kerosene and light gas oil, among others.

It’s the first time that RIL executives have specified the investment on the petrochemical projects in Jamnagar as part of an expansion drive called J3, which denotes the third phase of expansion of the complex. An e-mail query sent to an RIL spokesperson on Wednesday remained unanswered.

Apart from the proposed investment in the Jamnagar domestic tariff area (outside the special economic zone), RIL is also exploring the option of constructing a 5 million tonnes per annum (mtpa) floating re-gasification terminal for liquefied natural gas, or LNG, which isn’t a part of J3. Half the imported LNG would be used for the firm’s own expansion. The investment the LNG terminal would require isn’t immediately known.

RIL is likely to announce the plans publicly at the ‘Vibrant Gujarat’ conference for global investors to be held in January.

The firm has so far invested at least 1 trillion in its Hazira, Vadodara and Jamnagar facilities in Gujarat, with 70,000 crore being spent on the two built-from-scratch refineries in Jamnagar alone. The refineries have 1.24 million barrels per day of crude processing capacity, equivalent to about 2% of global capacity or one-third of India’s capacity.

The planned investment is a step in the direction of realizing Ambani’s ambition of doubling the enterprise value of the firm to 7.4 trillion in less than 10 years—a target he outlined in June.

As part of the growth plan sketched out to shareholders at RIL’s last annual general meeting, Ambani said the firm would diversify into new businesses such as power generation and broadband wireless and build upon its current strengths in plastics and petrochemicals through capacity addition.

One of the executives cited above said RIL would be able to finance most of the investment from its internal resources. “The entire money isn’t needed at once. There is already more than 20,000 crore of cash on our balance sheet and in the next two years this can more than double. Some part of the funds required for the expansion may need to be borrowed."

RIL is likely to generate $18 billion (Rs 81,900) in cash between 2011 and 2014, according to a Goldman Sachs estimate.

In the proposed cracker project, the residual gases generated as by-products from the two existing RIL refineries in Jamnagar can be used as feedstock to produce petrochemical products. The gas is currently being utilized to fire captive power units in the Jamnagar complex.

“I had announced the setting up of an off-gas cracker at Jamnagar in 2007. We are accelerating the implementation of this cracker. This off-gas cracker with over 1.5 mtpa of olefins capacity with matching downstream capacities will be one of the largest facilities in the world," Ambani said in the June meeting.

The project also envisages the gasification of pet coke, generated as a residue of refining crude, or imported coal to be used as fuel for the power plants in Jamnagar. The project, which aims to generate about 13 mmscmd of natural gas equivalent will also produce sulphur that can be sold in the open market. RIL produces about 15,000-16,000 tonnes of pet coke daily, which is sold in the open market.

“We are exploring various expansion plans at Jamnagar, including the setting up of a 2,000MW power plant. Things can change if there is a drastic change in market dynamics like a sharp drop in crude prices," said one of the two executives.