GMR group to buy stake in ONGC's Rs 31,000 crore refinery

The Rs 31,000-crore refinery and petrochemical plant being planned by Oil and Natural Gas Corporation (ONGC) in Kakinada in Andhra Pradesh is likely to have a new partner""the Bangalore-based GMR group.

GMR is the latest to join the long line of suitors, including the Hinduja group, Reliance Industries (RIL) and Essar Oil, for the refinery.

"GMR has written a letter saying they are interested in a stake in the refinery," said ONGC Chairman and Managing Director, R S Sharma. He declined to divulge the volume of stake that is likely to be offloaded to GMR and the price the Bangalore-based company would have to pay. GMR operates power plants and is also modernising the New Delhi airport.

The board of Kakinada Refinery and Petrochemicals (KRPL), the company implementing the 15-million-tonne-per-annum (mtpa) refinery and a 450,000-tonne per annum petrochemical plant, will meet on June 23 to take a decision on the stake sale. ONGC's subsidiary Mangalore Refinery and Petrochemicals (MRPL) holds 46 per cent stake in KRPL, IL&FS holds 51 per cent and the remaining stake is held by Kakinada Seaports.

Before GMR, the Hinduja group was keen on getting a stake in the refinery.

"It was only verbal discussions we had with the Hindujas. They did not give us any written request," Sharma said.

The refinery was initially planned with a capacity of 7.5 mtpa. Following feasibility studies, ONGC decided to double the capacity to 15 mtpa so sale of larger volumes of products could make the refinery viable. Feasible studies for the larger refinery are still on.

ONGC, which still does not have a deadline for starting work on the refinery, says Hindustan Petroleum's proposed refinery in Vishakapatnam, about 10 km from Kakinada, would make a refinery at Kakinada unviable. Hindustan Petroleum already operates a 7.5-mtpa refinery in Vishakapatnam.

The Andhra Pradesh government is, however, keen that the refinery and petrochemical plant come up in Kakinada, and has been lobbying hard with the central government.

ONGC has sought fiscal incentives, worth Rs 16,000 crore from the state government over eight years to make the refinery financially viable. It wants exemption from sales tax on the sale of petroleum and petrochemical products, free power and water supply during the construction, and road and rail connectivity.

The refinery, along with the petrochemical plant, is proposed to be set up in a special economic zone (SEZ) in Kakinada. Land for the SEZ has already been acquired.

"The fact that the refinery will come up in an SEZ is attracting interest from companies since it will get various tax incentives," said the analyst with an advisory firm.

Companies keen on a stake say the refinery is feasible as the products can be exported to Southeast Asian countries. Kakinada also has a port.

Moreover, the proposed 450,000-tonne per annum petrochemical plant alongside the refinery will also add value to the refinery. "Petrochemicals margins are expected to remain strong till the end of 2013," said aN RIL executive. He expects the margins to remain positive even during the expected downturn in the petrochemical industry after 2013.