Petronet-India looks beyond Essar Oil

Vol 4, PW 3 (15 Mar 00) Midstream & Downstream

Financial difficulties at Essar Oil are causing problems elsewhere, too.

This time on the board of Petronet-India, a holding company set up to oversee the construction of product pipelines in India. A source at Petronet-India confirms that Essar Oil 's inability to pay Rs10cr ($2.3m) for its 10% stake has laid open the possibility that it might have to be expelled from the holding company.

"Essar has asked for another extension," learns Petrowatch, "Our board will decide what action to take." Two Indian financial institutions are in the race to pick up Essar's 10% stake if the cash-strapped company fails to pay up: Unit Trust of India (UTI), one of the country's biggest mutual funds, and Infrastructure Development Finance Company (IDFC), an affiliate of the Housing Development & Finance Corporation (HDFC), run by the respected Indian industrialist Deepak Parekh. "We have to give them an answer soon," adds a source, "They can't wait forever." Senior managers at Petronet-India are clearly frustrated with Essar.

At its last board meeting on 31st December the Mumbai-based company sent Petronet-India a letter pleading for time. At its last board meeting on (Tuesday) 14th March, Petronet-India received a similar plea.

Essar is still unable to pay. Essar is one of five private companies and financial institutions with a 10% stake in Petronet-India.

The others are: Reliance Petroleum, State Bank of India, Infrastructure Leasing and Financial Services (ILFS) and Industrial Credit and Infrastructure Corporation of India (ICICI). The balance 50% is divided between Indian Oil Corporation, Bharat Petroleum and Hindustan Petroleum, who each have 16% and Indo-Burmah Petroleum (IBP), which has 2%.