Reliance venturing to gift another refinery to India by Dec 2008

Jamnagar, Mar 31 (UNI) With nearly 200 investors flocking to the hydrocarbon behemoth of Reliance group here on April two and its Chairman and Managing Director Mukesh Ambani busy mobilising funds, the Fortune Global 500 company has moved onto one more 'explosive growth' curve to gift yet another refinery to the country by December, 2008.

The capital cost of the new project is estimated at Rs 27,000 crore and the corporate giant has proposed to fund the project through a debt of Rs 15,750 crore and equity of Rs 11,250 crore, including proceeds from the issue, sources close to Reliance said.

Also, 80 per cent of equity from the new project of the reemerging Reliance Petroleum Limited (RPL) will be held by the parent - Reliance Industries Limited (RIL).

With this new entrant in the proposed special economic zone (SEZ) here, the total production of the twins is aimed to cross 60 million tonnes per annum (mtpa) from the present 32 mtpa, sources said.

Now, with the Government of India deciding to create a SEZ in Jamnagar, RPL, which had earlier merged with RIL, has decided to set up another refinery in the proposed 10,000 acre export-creator zone, to be developed by Reliance Infrastructure Limited, sources said.

The process of acquiring land for the project is in progress and the SEZ may even expand from its present size, sources added.

Originally, the proposed expansion of the existing refinery was to be within the 7,500 acre complex here. But, with the creation of the SEZ, this has been shifted to the new area in the shape of a new refinery which, being export-oriented, would get huge tax benefits. The company is gearing up to hold road shows at different places and is likely to announce an initial public offer (IPO) for it next month.

Sources said RPL, a cent per cent subsidiary of RIL, is a start-up company, formed to set up a greenfield refinery and polypropylene plant next to the existing refinery and petrochemical complex of RIL which, as on March 31, last year had emerged as the largest private sector company by market capitalisation in India.

It has assets worth over Rs 8,060 crore.

In fact, RIL is the only private sector company from India to feature in the Fortune Global 500. RPL will be 80 per cent owned subsidiary of RIL after the issue.

Already, work on the new project had started, though RPL has not yet commenced business operations. The complex refinery will have a total atmospheric distillation capacity of about 580 kilo barrels per stream day (KBPSD). The polypropylene plant will have a capacity to produce 0.9 million mtpa.

''The project was initially contemplated to be set up by RIL which subsequently decided to implement it through RPL,'' sources mentioned.

As regards the financial aspects of the new project, any additional equity raised in excess of Rs 11,250 crore will be used as additional contingency for the project.

The company has entered into a preliminary term sheet with certain banks and financial institutions to provide for a syndicated term loan facility for about Rs 6,700 crore. The company also intende to seek additional financing through export credit agencies for about Rs 4,500 crore to Rs 6,750 crore.

''We anticipate raising further debt funding of nearly Rs 2,250 crore to Rs 3,375 crore in accordance with the funding requirements for the project, as they arise,'' sources said.

The company had entered into agreements with Bechtel France SAS to license the technology for the major process units of the refinery and polypropylene plant, and also provide engineering, project management and other construction services for the project. Since much of the new refinery would be a replica of the existing one, work is expected to be completed within schedule, the company hopes.

RIL's existing refinery is the third largest in the world by atmospheric distillation capacity, built in 36 months and commenced commercial production in 2000. This refinery has operated at nearly cent per cent utilisation during its five years of operation, consistently outperforming the average utilisation rate of refineries in Asia Pacific region, the European Union and North America.

RIL has also won numerous awards for its outstanding performance in this sector.

About the competitive strengths, sources said the large and complex refinery would be capable of using heavier and low-cost crude to produce high quality, premium petroleum products.

It is being designed to have an atmospheric distillation capacity of nearly 580 KBPSD, which would make the new entity the sixth largest refinery globally. Together, the twin refineries with a total production of 1,240 KBPSD would relegate the existing largest Venezuelan behemoth Praguana (940 KBPSD) to the second place and the next in line, SK Corp of South Korea (817 KBPSD), to the third.

With this, Jamnagar will emerge as the single-largest location of refinery assets.

The proposed refinery, due to its strategic location with proximity to crude oil sources and target export markets, including the Middle East, would result in lower ship turnaround time and crude freight costs, sources said.

Besides, it would be located close to the existing port and tank facilities of Reliance Ports and Terminals Limited (RPTL), which plans to establish additional port infrastructure capacity to provide the new refinery, once it is operational, with the ability to import crude oil in very large crude carriers and to transport refined petroleum products in parcel sizes of upto 1,50,000 metric tonnes of gasoil or gasoline. This port is closer to the Eastern markets, as compared to those in the Middle East, sources added.

UNI