NCLT order may help revive NORL's refinery project in TN, say sources

The 6 mtpa refinery on East Coast was supposed to be commissioned in 2012 for about 3,500 crore

The recent order of the National Company Law Tribunal (NCLT), Chennai, to appoint an Insolvency Resolution Professional (IRP) under the IBC 2016, is expected to help the refinery project of Nagarjuna Oil Corporation Ltd (NOCL). This would get new investors and restart the project, according to internal sources. The Nagarjuna Oil Refinery and Tata Groups-backed NOCL, has been looking for a strategic partner for long to complete the project.

The 6 mn tonne refinery on the East Coast of Tamil Nadu was supposed to be commissioned in 2012 for about Rs 3,500 crore, but the cyclone Thane stalled the project. Around 60 per cent of the work in the refinery was completed and did not incur any damage from it. Since 2012, NOCL has been looking for a strategic investor to pump in fresh equity and revive the project.

Meanwhile, last week the NCLT, Chennai appointed an Insolvency Resolution Professional (IRP) for NOCL. Sources said that this would help the company to accelerate the phase to bring in a new investor.

While NOCL's management was not available for comment immediately, insiders said that to commence the project, the company would require around Rs 14,000 crore to15,000 crore, including debt and principal amount. The company needs around Rs 4,000 crore to 5,000 crore equity to raise such a debt.

Last year, Nagarjuna Oil Refinery Ltd (NORL), which is the majority shareholder, got board's approval to dilute 46.78 per cent in NOCL. The other investors included TIDCO of Tamil Nadu Govt (2 per cent), Tata Sons (12 per cent) Tata Petrodyne (12 per cent) and Trafigura (19 per cent).

Earlier, Singapore-based Netoil (Singapore PTE Ltd) has shown interest in investing in the project and has also agreed to infuse Rs 3,600 crore in it. It was then reported that Indian Oil Corporation was planning to take over the Refinery, but none of these happened.

Around 15 lenders have invested in the project and later the Banks sought Reserve Bank of India's (RBI) dispensation in view of the assets likely to be classified by the banking regulator as non-performing asset (NPA).

By appointing IRP, recovery actions by the lenders, such as the SARFAESI Act etc., will be kept in abeyance. Board of Directors of NOCL is suspended and management has to work under IRP, which would follow a quick and transparent process to find a new investor, by an open bid, said an official, who requested not to be quoted.

The IRP will also try to raise funds to keep the operations going until a resolution process is completed. That is one of the first issues the staff of NOCL would request the IRP to resolve, as salaries have not been paid for over two years and it would take a few more months to induct a new investor.

After this the NCLT can appoint a liquidator to wind up the company. The Insolvency and Bankruptcy Code (IBC) gives 180 days for a resolution and a one-time extension of 90 days. As the lenders and creditors don't want to wind up the company since they will end up losing a lot of money, they are also keen on reviving the project by bringing an investor.

"We have got some proposals from a few strategic investors, who are mostly outside India," said a senior official.

He is confident that the bid process by IRP will identify a suitable investor since refinery has a dispute free land bank of 2,500 acres, enough to expand up to 30 million tonnes annual capacity and a petrochemical complex. Current demand stands at 6 million tonnes, so the first phase production will be consumed locally.

NOCL has been an attractive incentive scheme under the New Industrial Policy of Tamil Nadu Government 2014. As per this scheme, NOCL is bound to get not less than Rs 12,400 crore as VAT refund as a soft loan to be repaid after 16 years.

The current scenario of low global crude prices and profitable product prices in India make this an attractive investment. IRR is estimated at 25 per cent, said the source

"We don't have any problem except money, and once the money is in, the project can be completed and commissioned in 18 months," said the official.

The company may have to prepare itself for Euro VI, which will come into effect in India by the time the refinery would be ready, and that is an additional investment of Rs 1000 crore it has to factor in now.