Essar Oil ties up $920 mn to fund refinery expansion

Ruias-owned Essar Oil has tied up $920 million to fund the expansion of its Vadinar refinery in Gujarat to 16 million tonnes, CEO Naresh Nayyar said.

"We have received approval for the debt from ICICI Bank, IDBI and SBI and we hope to sign loan agreements sometime next month," he told PTI from Mumbai.

The Vadinar refinery, situated five kilometres away from Reliance Industries' twin refineries in Jamnagar district, currently operates at 133 per cent of its nameplate capacity of 10.5 million tonnes a year.

"The expansion will cost us $1.6 billion or Rs 7,810 crore. Of this Rs 4,600 crore is debt and the rest equity," he said, adding that the expansion would be completed by December 2010.

"We are on track for mechanical completion by December 2010. Overall 35 per cent of the project work has been completed till date," he said.

The company will in Phase II add a new 18-million-tonne-a year processing unit at an investment of close to $4.4 billion by December 2011. "Phase II would be taken up later. Currently, we are concentrating on Phase I expansion," he said.

Nayyar said the financial closure (or tying up funds) for phase I of the refinery expansion will be completed with the signing of the loan agreement next month.

The project cost of Rs 7,810 crore is proposed to have an equity component of Rs 2,000 crore, internal accruals of Rs 1,210 crore and a debt of Rs 4,600 crore.

The financial closure for Phase II is likely in the next two quarters of 2009-10.      While most of the debt for Phase I would be rupee loans, Phase II may see a $700 million foreign loan.

After the expansion, the refinery will stop producing low-value fuel oil (FO). Margins of FO, which account for 25 per cent of the fuel produced by the Vadinar refinery, currently are negative.

Nayyar said Essar plans to increase the number of petrol pumps to 1,500 during the current fiscal from the current 1,252.