A better balancesheet, green plans behind RIL's change of tack for oil biz

Reliance Industries Ltd’s (RIL) decision to not carve out its oil to chemicals (O2C) business into a separate company and get in Saudi Aramco as a partner in it may have a lot to do with a realignment that is needed to strengthen its green energy foray. At the same time, its better debt position with cash and cash equivalent at Rs 259,476 crore surpassing its gross debt of Rs 255,891 crore puts it in a better financial position, obviating the need to get in any equity support.

RIL now plans to take in partners in its new energy and specialty chemical businesses which means its subsidiaries will take different directions based on their requirement for technology tie-ups. It has already invested $1.2 billion in acquisitions in REC Solar ($770 million) for polysilicon, cell and module manufacturing, Sterling and Wilson ($385 million), Nexwafe ($29 million) which manufactures monocrystalline silicon wafers, Stiesdal for electrolyzers, and Ambri ($50 million) for long-duration battery technology.

Besides Saudi Aramco, itself, is refocusing its business to a net-carbon zero level by 2050 which means both RIL and the Saudi state-owned company will need to align their petroleum business to the new global reality of reducing the carbon footprint. Saudi Aramco wants to cut emissions from its operations in oil production and processing, which comes under the purview of scope 1 and also scope 2 which includes from consumption of electricity. Cutting down emissions from indirect emissions from their products that come under scope 3 may not be easy for both the companies.

Besides the adoption of greener ways, COVID-19 added to the unpredictability in the fuel market. “There has been an unprecedented volatility in the petroleum market and a lot has changed since RIL-Saudi Aramco announced their partnership in 2019. RIL is now reevaluating its portfolio,” said a company executive.

Reliance Industries Limited and Saudi Aramco signed a non-binding letter of intent in August 2019 for a potential 20 per cent stake acquisition by Saudi Aramco in the O2C business of Reliance. A company, Reliance O2C Ltd, to implement a scheme of arrangement between RIL and its shareholders and creditors was also registered.

The O2C business would have included refining, petrochemicals, fuel retail, aviation fuel and bulk wholesale marketing businesses. It would have included its assets, liabilities and property including its facilities in Jamnagar, Dahej, Hazira, Nagothane, Vadodara, Patalganga, Silvassa, Barabanki and Hoshiarpur.

Under its new energy and materials plan, however, Dhirubhai Ambani Green Energy Giga Complex, an integrated renewable energy manufacturing hub, would come up at Jamnagar premises. The complex would otherwise had gone to the O2C subsidiary but would now include an integrated solar photovoltaic module factory for production of solar energy, an energy storage battery factory, an electrolyser factory for production of green hydrogen and a fuel cell factory for converting hydrogen into motive and stationary power.

Jamnagar would be the center for Reliance’s new businesses of renewable energy and new materials, supporting its 2035 net carbon zero commitment. The existing infrastructure would be used for the new business.

Though RIL’s late Friday night statement said it would be Saudi Aramco’s “preferred partner for investment in the private sector in India”, Saudi Aramco has tie-ups with public sector companies for a refinery in the West Coast, as well as with Oil and Natural Gas Corporation for sale and trading of petrochemical businesses. RIL would also collaborate with Saudi Aramco & SABIC for investments in Saudi Arabia.

RIL will also support independent manufacturers with right capabilities with Rs150bn (US$2bn) of capital to be part of this nationwide ecosystem.