It is reported that Nagarjuna Oil Corporation based at Cuddalore in Tamil Nadu, promoted jointly by Nagarjuna Fertiliser Group and TIDCO, has filed for bankruptcy under Insolvency and Bankruptcy Code (IBC).
Nagarjuna Oil Corporation is in the process of setting up 6-million tonne a year petroleum refinery in Cuddalore, Tamil Nadu. The refinery located at about 200 km south of Chennai on the east coast, is touted as the largest private sector investment in Tamil Nadu. Process plant works of this project commenced in July 2008. The project site is spread over 2000 acres, which includes 300 acres of green belt.
The project was to have been commissioned in 2012 at the cost of Rs.3500 crore, but continuous delays and cost over-run have contributed to the project cost now exceeding to Rs.16,500 crore, with the date of completion of the project still uncertain.
The project was designated as the Anchor unit of the proposed Petroleum, Chemicals and Petrochemicals Investment Region (PCPIR) in Cuddalore/Nagapattinam Districts.
Anchor unit for PCPIR
The bankruptcy application has been filed by the Nagarjuna Oil Corporation, even as Government of Tamil Nadu has announced its decision to implement PCPIR in Cuddalore / Nagapattinam District in Tamil Nadu.
In PCPIR scheme, anchor unit, in this case Nagarjuna Oil Corporation, is the petroleum refinery that would be involved in the production of petrochemical feedstocks such as naphtha, LPG, diesel, bitumen, Euro IV and Euro V auto fuels etc. which can be put to use for the production of several derivative products.Apart from the above, the company has the potential for the manufacture of propylene, ethylene, etc. which can also be produced from the existing facilities with limited additional investment. The refinery will have associated marine infrastructure including single point mooring (for crude oil handling in the major crude carriers) and jetty (for finished product handling). It will have high complexity factor designed to take advantage of processing heavy and sour crude oil. The refinery project will have the flexibility to process a different type of crude and produce multiple trade quality products.
The PCPIR scheme in Cuddalore / Nagapattinam districts, for which Nagarjuna Oil Corporation has been designated as anchor unit, would involve around 23000 hectares of land covering 45 villages and is expected to generate investment of more than Rs. One lakh crore in petrochemical and allied projects that would significantly contribute to the industrial and economic growth of Tamil Nadu and generate large scale employment opportunities.
The projects that are expected to be set up in PCPIR would be based on feedstock generated by Nagarjuna Oil Corporation, which is designated as anchor unit.
In such circumstances, the bankruptcy petition of Nagarjuna Oil Corporation is very disappointing, and it makes the PCPIR scheme uncertain, putting a question mark on its future.
The project of Nagarjuna Oil Corporation has been heavily delayed mainly due to the inability of the promoters, namely Nagarjuna Fertiliser Group and TIDCO, to raise the needed funds to complete the project. It is reported that around 60% of the work relating to the project has already been completed and the project implementation is now at a stand still. The project promoters have not managed to finding the strategic investors to pump fresh equity to revive the project.
In September 2015, the Tamil Nadu government extended a structured package of incentives for the project, including VAT refund, apart from concessions and subsidies. However, it was not enough to generate interest among strategic investors.
Need for government intervention
It is essential that Government of Tamil Nadu and Government of India should take particular and urgent interest in reviving the much needed and highly relevant project of Nagarjuna Oil Corporation, that would go a long way in promoting and sustaining the industrial growth in the state.
Several existing refineries are now being expanded in the country.
The government of India is promoting a massive petrochemical complex in Maharashtra, where three public sector oil companies—Indian Oil Corp. Ltd (IOC), Bharat Petroleum Corp. Ltd (BPCL) and Hindustan Petroleum Corp. Ltd (HPCL)— recently signed an agreement to build one of the world’s largest integrated refinery-cum-petrochemicals complexes in Ratnagiri district of Maharashtra. The 60 million metric tonnes per annum west coast refinery-cum-petrochemicals complex will be constructed at an estimated cost of, Rs.2,60,000 crore and is expected to be commissioned by the year 2022.
While new petrochemical projects are being promoted and existing refineries are being expanded in other states, it would be a tragedy if the project in Tamil Nadu, which is already 60% completed, is allowed to go high and dry.
It is beyond the capability of Government of Tamil Nadu to bring investment into the project on its own since Tamil Nadu Government is facing challenging financial conditions. The logical step is that the Government of India should intervene and ask the public sector organizations like IOC or HPCL which is being merged with ONGC, to participate in the project.
Unfortunately, the fate of this unit has not been much discussed in Tamil Nadu.
Since promoters have filed the bankruptcy petition, taking over of the company by other large units can be done in quick time.
It will be appropriate for the Government of India and Government of Tamil Nadu to set up a strategic committee to work out proper plans to complete this project before the end of 2018, when PCPIR scheme may be ready.