IOC-Chennai Petro JV for new refinery skips need for Iranian invest

NEW DELHI – The decision to build Chennai Petroleum Corp Ltd’s new refinery through a joint-venture with parent Indian Oil Corp Ltd will allow the project to go ahead without any need for fresh equity from National Iranian Oil Co, which is part of the former’s promoter group, sources in the know told Cogencis.

National Iranian Oil Co, which holds 15.4% stake in Chennai Petro through its arm Naftiran Intertrade, was ready to invest in the 290-bln-rupee project to replace Chennai Petro’s 1-mtpa Cauvery Basin refinery in Tamil Nadu with a new 9-mtpa facility.

But following re-imposition of sanctions against Iran by the US in 2018, Indian Oil feared that fresh investments by the West Asian nation could expose both Chennai Petro and Indian Oil to risk of sanctions.

As a result, the project had been stuck at the planning stage for a couple of years as the state-owned Indian Oil and Chennai Petro mulled their options. According to sources, the government was also consulted before the joint-venture model was agreed to.

“Originally, it was supposed to be solely CPCL’s (Chennai Petro’s) project with debt-equity ratio of 70:30, which would have required both promoters (Indian Oil and Naftiran Intertrade) to put in equity. That would have been risky,” one of the sources said.

“With the JV, we have effectively done away with the need of any new investment by Iran,” the source said.Earlier this month, Chennai Petro’s board, which is headed by Indian Oil Chairman Sanjiv Singh, gave its nod to implement the project through a joint-venture in which Indian Oil and Chennai Petro will hold 25% stake each.

The remaining 50% stake will be held by financial, strategic, or public investors. Chennai Petro will invest up to 25 bln rupees in the joint venture.The proposal will be taken up for approval by Indian Oil’s board soon. The new refinery is estimated to be completed and commissioned in around four years from the date of final investment approval by Chennai Petroleum and Indian Oil.

Taking the joint-venture route for the project will also protect Iran’s stake in Chennai Petro, another source said.

“If the project was done by CPCL alone without fresh equity from Iran, it would have resulted in dilution of NIOC’s (National Iranian Oil Co) stake in the company and could have resulted in them losing one of their two positions on the CPCL board,” the second source said. “Iran did not want any dilution in its stake. With the JV, Iranian stake in CPCL will not be affected.”

As per project documents seen and reviewed by Cogencis, the new 9-mtpa Cauvery Basin refinery will be designed to produce almost 4 mtpa of Bharat Stage-VI diesel, 1.80 mtpa of Bharat Stage-VI petrol, 676,000 tn per year of liquefied petroleum gas, and 300,000 tn per year of aviation turbine fuel, among other products.

The refinery will also have a polypropylene unit with production capacity of 532,000 tn per year.The new refinery will be designed to process two kinds of crude mix–either 4.5 mtpa each of Basrah Light and Basrah Heavy crude, or 9 mtpa of Iranian Light crude.

The project would also include a dedicated single-point mooring for the refinery and a sub-sea pipeline to connect the refinery with Karaikal Port for product dispatch. Onland pipelines to supply products from the refinery to Indian Oil’s marketing terminal nearby will also be laid.

The total land requirement for the project is 1,345 acres, which includes 618 acres of the existing refinery’s area. The rest is being acquired by Chennai Petroleum.

At present, Chennai Petroleum’s total refining capacity is 11.5 mtpa. Apart from the 1-mtpa Cauvery Basin refinery at Nagapattinam, the company has a 10.5-mtpa refinery at Manali on the outskirts of Chennai.

At 1424 IST, shares of Indian Oil traded at 88.20 rupees on the National Stock Exchange, 1.3% lower from the previous close. Shares of Chennai Petro traded 2.1% lower at 85.20 rupees. End