This status was subsequently changed as the prospects of a 100 per cent EOU did not look very attractive. Capacity was also enhanced to 9 million tonnes given current trends of ideal refinery size starting at this level. The IOC board cleared the proposal at a recent board meeting.

The Nagapattinam refinery is crucial to the Fortune 500 company as it would mark its foray into the south. This has been one of the reasons why it has been pressingfor marketing rights for MRL and Cochin Refineries which have a combined capacity of 15 million tonnes. IOC has, in fact, reiterated that it would be willing to forego these tieups once the Nagapattinam project is commissioned.

Apart from these global majors who are keen on a stake in the refinery, IOC is as keen on roping in the Oil and Natural Gas Corporation following the recent move by the two companies to go in for a 10 per cent crossholding arrangement. They have also decided to work together in a series of petro-related activities both here and abroad through two holding companies. The joint ventures will confine equity participation of IOC and ONGC to 50 per cent so that they remain non-Government entities.

Under this arrangement, the lead company for the project will automatically be eligible for a 26 per cent stake while offering the other up to 24 per cent. In the event of the latter backing out, the lead company -- be it IOC or ONGC -- can up its stake to 50 per cent. Hence, in theNagapattinam refinery, IOC will offer ONGC up to 24 per cent even while a global player can be entitled to a 26 per cent stake.

There are plans for a petrochemicals complex also near the refinery and reports have indicated that Indian Petrochemicals Corporation (IPCL) has been sounded out to study its feasibility. This again could invite participation from other oil companies, both from here and abroad, though the idea is still in its infancy stage.

While the think-tank of the Government has maintained that investment in refineries is just not worth it, considering the low returns, IOC believes that the Nagapattinam project is of strategic importance especially when it concerns its presence in the south. And even while it is in the race for a marketing tie-up with MRL, having signed one recently with CRL, the oil PSU is categoric that in the long run, it would like to hold its own in the marketplace.

MRL board yet to make commitment on project

The board of MRL is yet to give its approvalregarding its participation with IOC in the Nagapattinam project. While no reason has been attributed yet for the relatively delayed decision, sources say that the huge investment for the refinery could be one of the reasons for a rethink on MRL's role.

"It is a lot of money involved and it remains to be seen if this is worth it, considering the low returns on refining," they said.

MRL was tipped to take a 26 per cent stake along with IOC and its decision could be largely determined by the findings of the Nitish Sengupta committee on a restructuring proposal for the downstream oil sector. Depending on the panel's recommendations for its own survival in a deregulated scenario, the board of MRL would then be in a better position to give a commitment to the Nagapattinam project.

INSIGHT
Alternatives needed

The end of the ninth plan might see India turning into a surplus region of petroleum products. Hence the margins in refining are bound to fall. Further, with complete deregulation,import duties at the end of the ninth plan would be a maximum of 10 per cent, making domestic prices very closely linked to international product prices.

Under such conditions it may make better sense to set up a complementary petrochemical complex or power plant based on waste gas extracts in existing refineries. With decanalisation of crude imports and revision of standards expected in petrol, diesel and other refined products, huge aromatic complexes can be produced by suitable investments in existing refining companies--which would immediately give a positive impact to the cash margins of IOC.