Three more months before IOC sees Paradip money

Vol 12, PW 8 (04 Sep 08) Midstream & Downstream

Indian Oil will have to wait for at least another three more months before it sees the money needed to start construction of the proposed 15m t/y refinery at Paradip in Orissa.

IOC is in the process of arranging a Rs14,900cr ($3.54bn) rupee dominated loan through SBI Capital Markets to begin work on the refinery, which was announced 13 years ago. “We have mandated SBI Caps to arrange a rupee loan for us,â€‌ an IOC board director confirms.

SBI Caps launched the â€کsyndication’ process to arrange a 14-year loan on August 25, approaching only nationalised banks to raise the money. “They (SBI Caps) are talking to all the 24-25 banks,â€‌ says a source in the banking community.

“They have already circulated the â€کterm sheet’ and â€کinformation memorandum’ to the banks.â€‌ Our source adds that the entire process will take much more time than expected.

“Banks will start sanctioning the money in a month’s time. After that, SBI Caps will sit with them and negotiate the contract.

Three or even four months can go by before the money is actually disbursed.â€‌ Indian Oil estimates the total fund requirement for the Paradip refinery at Rs33,500cr ($7.98bn).

“Earlier IOC wanted to set up an integrated refinery and petrochemical complex,â€‌ says an industry source. “That would have entailed an investment of round Rs60,000cr ($14.28bn).

No bank in India, not even a consortium of banks could have funded that much.â€‌ IOC, we also learn, was advised by its technical consultant Foster Wheeler and SBI Caps to â€کdefer’ the petrochemical complex for now.

“It might be taken up after the commissioning of the refinery.â€‌ Foster Wheeler has prepared the front-end engineering design for the proposed refinery.

Foreign banks operating in India should not feel left out. “IOC will arrange Rs4000cr from extra commercial borrowings or in foreign loans,â€‌ adds our IOC source.

Industry observers tell us Indian state-owned banks are confident lending money to IOC since SBI Caps carried out an appraisal of the project some three months ago.