Work on the ₹18,000-crore Nagarjuna Oil Refinery continues to be stalled as lenders seek ‘recompense’ for debt restructure from Netoil Singapore, the prospective investor.
According to reliable sources, at the latest round of discussions with banks, the lenders demanded recompense for debt restructuring from Netoil from the State Government incentive to the project.
Netoil’s decision is awaited.
At the Global Investors Meet earlier this month, the Tamil Nadu Government extended a structured package of incentives.
Along with concessions and subsidy, it has granted a VAT refund amounting to about ₹12,500-18,000 crore as soft loan at 0.1 per cent interest to be repaid after 16 years.
This means, in the net present value, if the VAT refund is ₹18,000 crore the company will receive ₹3,000 crore refund annually during the first six years of commissioning.
Investors can retain 80 per cent of the refund at their own discretion and put the balance 20 per cent in fixed deposits to cover the annual repayment at the end of the concession period.
Under the proposed restructure, Netoil will infuse ₹4,000 crore fresh equity – including ₹3,700 crore additional equity and ₹300 crore to buy out all the shareholders except the Tamil Nadu Industrial Development Corporation, a state-run industry promoting agency which holds a two per cent stake.
Netoil will buy out Nagarjuna Group’s 47 per cent stake, Tata Group’s 25 per cent, Trafigura’s 20 per cent, and Cuddalore Port Company and Uhde of Germany which hold two per cent each, at an 82 per cent discount to face value.
The six-million-tonne a year refinery coming up at Cuddalore, about 100 km south of Chennai, was to have been commissioned in 2002 at about ₹3,500 crore.
Delays and rising costs have contributed to the project ballooning to an estimated ₹12,500-18,000 crore with a tentative plan to start operations in 2017.
According to the sources, the total investment in the project so far is ₹8,000 crore, which includes ₹4,500 crore expenditure and ₹3,500 crore interest cost. A consortium of 17 PSU banks will have to cut their losses and bring in additional debt of over ₹7,000 crore as part of the restructure.
As of now, the company does not even have the ₹2-crore a month needed for maintaining the equipment and paying salaries.
Over 170 employees of the refinery have not been paid since end of 2014. Service providers also have not been paid and the project site is on the verge of being closed down.
This project, touted as the largest private sector investment in Tamil Nadu, is expected to underpin the development of a Petroleum, Chemicals and Petrochemicals Investment Region, spread across Cuddalore and Nagapattinam for development as a hub of petrochemical industries.