ONGC to exit Kakinada refinery, GMR to take over

Infrastructure company GMR will replace Oil and Natural Gas Corporation (ONGC), the country's largest oil and gas producer, in the proposed Rs 31,000 crore refinery and petrochemical plant at Kakinada in Andhra Pradesh, after the oil company found the project to be non-profitable venture.

ONGC had also asked the Andhra Pradesh government for tax incentives of Rs 16,000 crore over eight years to make the project viable. The state government, however, declined.

ONGC, which signed an agreement with the Andhra Pradesh government in September 2006 to set up the refinery, says that the project would have been a non-profitable one. "It is a non-profitable business and that is why we have kept out of it," said a top ONGC official who did not want to be named.

A GMR spokesperson in Bangalore said the company had not yet received any official communication from ONGC. Neither he, nor ONGC, disclosed how much GMR would pay to ONGC.

The originally planned 7.5 million tonne per annum (mtpa) refinery was replanned with a capacity of 15 mtpa after the smaller refinery was found to be financially unviable. "Even the larger refinery was unviable. Refineries are not our business. We will continue to concentrate on exploration and production," said the ONGC official.

ONGC, which had 46 per cent stake present in the refinery and petrochemical project through its subsidiary Mangalore Refinery and Petrochemicals (MRPL), had asked the Andhra Pradesh state government for fiscal benefits worth Rs 16,000 crore over eight years. "The state government was not willing to give us that incentive, and we were not willing to go ahead without the incentive. So they wanted us out and we obliged," the ONGC official said.

The Andhra Pradesh government was keen that the refinery be set up. Chief Minister YS Rajasekhar Reddy had urged Prime Minister Manmohan Singh and Petroleum Minister Murli Deora to convince ONGC to execute the project after ONGC found the refinery unviable after many studies were conducted.

The refinery and petrochemical is being implemented by Kakinada Refinery and Petrochemicals (KRPL), in which MRPL had 46 per cent stake, IL&FS 51 per cent stake and the Andhra Pradesh government 3 per cent stake through Kakinada Seaports.

KRPL's shareholding will now be restructured with GMR controlling 51 per cent stakle, IL&FS and the Kainada Seaports holding 46 per cent and the Andhra Pradesh Industrial Infrastructure Corporation (APIIC) the remaining 3 per cent stake.

Even though ONGC had found the refinery unviable, various companies such as the Hinduja group, Reliance Industries and Essar Oil had shown interest in the refinery and petrochemical project. The project was initially conceptualised by then ONGC chairman and managing director Subir Raha, who is currently employed by the Hindujas. "The refinery is very feasible as its products can be exported to the east Asian countries. Kakinada also has a port which will facilitate import of crude oil and export of petroleum products," said a Delhi-based analyst who advises oil companies.

The refinery is being planned in a special economic zone land for which has already been acquired. The refinery will also be part of a Petroleum, Chemical and Petrochemical Investment Region (PCPIR) which runs from Vishakapatnam to Kakinada, a distance of around over 150 kms.

BS Reporter / Mumbai June 23, 2008, 18:52 IST