â€کDebt-free' ONGC borrows $1bn for â€کaromatics' plant

Vol 12, PW 10 (02 Oct 08) People & Policy

When Subir Raha was chairman you often heard ONGC boast it is a â€کdebt-free’ company.

This label would still be true if you turn a blind eye to the $1bn that ONGC is currently trying to raise through a subsidiary to fund a proposed â€کaromatics’ (petrochemical) plant in Mangalore. On paper the proposal looks eminently sensible.

ONGC Mangalore Petrochemicals (OMPL) wants state-owned investment banker SBI Caps to ask financial institutions, mainly Indian nationalised banks, if they’d be willing to lend close to $1bn to fund construction of a Rs6400cr ($1.52bn) â€کaromatics’ plant adjacent to the 9.69m t/y ONGC-owned Mangalore Refinery, which will feed the integrated complex with naphtha. SBI Caps is pleased with the response so far from the market.

“Many banks have informally agreed to lend money to ONGC,â€‌ we hear. “After all ONGC is coming to the market after a long time.

â€‌ To its credit ONGC has taken great care to stress its â€کarms-length’ relationship with this new-born enthusiasm for petrochemicals by limiting its exposure to OMPL – a conveniently named â€کSpecial Purpose Vehicle’ - to just 46%. Still, that’s equivalent to $460m debt.

Another 3% in OMPL is held by fully-owned subsidiary Mangalore Refinery, with the balance 51% still looking for a home. All technical pieces of the project jigsaw are falling into place.

In April this year OMPL signed a licence agreement with UOP – a recognised world leader in â€کaromatics’ plant technology – for a process to convert naphtha into benzene, toluene and xylene. More, Toyo Engineering has been selected as management consultant and is beginning site survey work.

By December 2010 (going by the current time-table) when the plant is commissioned it will be the largest petrochemical complex in southern India, producing 900,000 tonnes of paraxylene and 275,000 tonnes of benzene per annum – very commendable! But the bigger question is this: why is India’s leading state-owned explorer exposing itself to $460m debt in a petrochemicals plant when its core activity is exploration and production