Spic Pta, Pfy Project Sees Rs 1000 Crore Overrun

Chennai-based conglomerate Southern Petrochemical Industries Corporation's (Spic) project to set up a PTA and PFY unit in Tamil Nadu has incurred a whopping cost overrun of Rs 1,000 crore.

The project cost, which had initially been estimated at Rs 2,125 crore, has now been revised to Rs 3,230 crore.

Apart from the four-year time overrun the project was scheduled to be commissioned in April 1997 -- a minor change in the project configuration has contributed to the increase in project cost.

"Spic's project yet to see the light of the day due to litigation and this has resulted in the cost escalation," financial institution sources said.

Spic has admitted to Business Standard that there has been a cost overrun but refused to comment on the precise figure. "The revised estimates have now been submitted with IDBI for approval," a Spic spokesman said.

"The initial project cost for SPIC Petrochemicals was envisaged on a different configuration with a capacity of 2.5 lakh tonnes per annum (tpa) of PTA and 65,000 tpa of PFY. These capacities have been revised upwards at three lakh tpa for PTA and 80,000 tpa for PFY and now includes provisions for a texturising unit as well," he added.

"Obviously, this would involve an additional cost and the revised package of project cost has been submitted to IDBI. In view of the revised capacities, we feel there cannot be a comparison on cost escalation components on one-to-one basis and we are not in a position to comment on your assessment of cost overrun being pegged at Rs 1,000 crores," the Spic official said.

The work on the project commenced in late, 1994 but came to a standstill in March, 1997 following a spat with former joint venture partner Chennai Petroleum Corporation (formerly MRL). The corporation obtained an injunction from the Chennai High Court.

The bone of contention was that while Spic sought to implement the project on its own, Chennai Petroleum Corporation contended that the project had to be implemented through a joint venture as originally envisaged.

Spic had parted ways with Chennai Petroleum as it felt that there was an inordinate delay on the part of its joint venture partner in obtaining clearances for the state government. The two sides entered into an out of court settlement in 1998, under which Spic will pay compensation to Chennai Petroleum.

The Cabinet Committee on Economic Affairs cleared the deal between the two sides in February, 2001. Top sources in financial institutions said that though the project has been delayed considerably, it is still viable.