Industry thinks Essar refinery has no value

Vol 3, PW 23 (08 Dec 99) Midstream & Downstream
     

Can Essar Oil find a buyer for its troubled 10.5m tonnes refinery at Vadinar Not likely, say oil industry analysts.

A few months ago, Essar began talks with Bharat Petroleum Corporation (BPCL), which voiced an interest in acquiring a 26% stake in the refinery. But those talks have reached a stalemate.

Analysts stress the reason for the deadlock is Essar's insistence that BPCL assume all past liabilities, while BPCL is only willing to assume liabilities that accrue after it buys a stake. After we said no, they went to Indian Oil Corporation (IOC), but were given the same answer.

Now they have come back to us, said a BPCL official. IOC chairman Mohammed Pathan, confirms that his company has received a proposal from Essar, and was interested but was waiting to see what happens with BPCL.

Essar officials, meanwhile, claim they have also received a proposal from Oman Oil,which looks good and which looks likely to go ahead. Sceptics suggest this proposal is little more than invention and that the Essar refinery will never find a buyer.

One even goes so far as to suggest that it will be bought at scrap value by arch rival Reliance Industries. A recent report has it that Total of France is examining the possibility of acquiring a stake in the refinery, but this could not been independently confirmed.

The sad truth is that refining capacity in India has already reached saturation levels, a point stressed by a Shell official on a recent visit to India. We dont think there is a need for additional refining capacity in India, said John Hofmeister, a human resources director, when asked if Shell would be interested in acquiring a refinery in India.

Essars bankers meanwhile, Industrial Credit and Infrastructure Corporation of India (ICICI), has set up a five-man panel of industry experts to undertake a viability study of the Essar refinery. A report is expected shortly.