A top team from the two oil companies has scheduled a trip to Germany later this month to check out on the progress of the DFR which is being handled by a top consultant in the country. The refinery, projected to cost around Rs 7,500 crore, will have a capacity of nine million tonnes.

MRL's reluctance to invest in Nagapattinam stems from the fact that it already has a 6.5 million tonne refinery in Manali near Chennai where the capacity is being increased to 9.5 million tonnes. It also has a 0.5 million tonne facility in the Cauvery basin (CBR). The top brass believes that any investment in a new project should also factor into consideration the commissioning of the six million tonne Nagarjuna Oil refinery in Cuddalore and expansion of Cochin Refineries' capacity to 13.5million tonnes. ``There is a strong possibility of the south becoming surplus in products which would naturally question the need to set up the Nagapattinam refinery,'' sources said. However, even if MRL were to back out, IOC is determined to go ahead with the project and has indicated that other players like Petronas of Malaysia and Marubeni of Japan are ready to pitch in as partners.

The Nagapattinam refinery was conceived nearly four years ago as a three million tonne export-oriented project. This status was later altered given the rapid changes in the global petro-product market and capacity was consequently enhanced to nine million tonnes.

With its stronger financial position, IOC was expected to subscribe to 26 per cent of the equity while MRL would confine itself to a lower percentage. The objective of setting up the project was to ensure that IOC would establish a strong base in the south. Interestingly, IOC had earlier presented a proposal which involved MRL evaluating the assets of its 0.5million Cauvery Basin refinery in TN and infuse that as equity to the neighbouring Nagapattinam project. Current estimates are that this will work out to Rs 200-300 crore which would roughly translate as a ten per cent stake in the refinery (based on a 3:1 debt, equity ratio).

MRL, incidentally, had planned a jetty for the CBR but IOC believes this is a futile investment in the context of the Nagapattinam refinery.

The revised thinking now involves putting up a single buoy mechanism (SBM) which can handle crude imports at Nagapattinam. Interestingly, IBP is reported to be equally keen on taking a stake in the original jetty plan as it markets the products of MRL's CBR.