The cost of the plan has been estimated at Rs 2,100 crore which will be funded through a combination of debt and internal accruals in the ratio of 2:1. Once this is done, the capacity of MRL's 350 mw power plant, proposed as a joint venture with L&T, will also be enhanced to 500 mw. The fuel for the project will be the refinery's heavy residue.

The latest report of the petroleum ministry states that the cost of the power project has been pegged at Rs 1,100 crore. The pre-feasibility report has been submitted to the government and the project will not only improve middle distillate yield but improve the profitability of the refinery.

MRL, which was incorporated in 1965 as a publiclimited company, increased its refining capacity in 1980 from 2.5 million tonnes to 2.8 million tonnes. This was later doubled to 5.6 million tonnes in 1985 at a cost of Rs 170 crore and thereon to 6.5 million tonnes in 1993. It was around this time that MRL commissioned its 0.5 million tonne Cauvery basin refinery (CBR) at Nagapattinam, the same location where it has planned a nine million tonne facility with the Indian Oil Corporation.

Sources say IOC is now examining a plan which would pave the way for a unique refinery joint venture with MRL and the Oil and Natural Gas Corporation. The starting point for the proposal lies in constructing a jetty at MRL's CBR. The current plan would involve MRL making an independent valuation of its assets at CBR which, in turn, would constitute its equity contribution to the joint venture for the jetty with IOC.

"It is quite apparent that IOC would be able to generate cash far more easily than MRL," sources said. Back-of-the-envelope calculations indicate that theequity participation between the two oil companies would be in the ratio of 5:1 (IOC Rs 25 crore, MRL Rs 5 crore) for the Rs 80 crore jetty. The balance would be raised in the form of debt.

The new joint venture, in turn, would supervise the expansion of MRL's CBR to one million tonnes from the present 0.5 million tonnes. The jetty would be a key component of not only this facility but also the nine million tonne Nagapattinam refinery scheduled to be commissioned after 2002.

This project would also come under the aegis of the joint venture and present indications are that the promoting company, IOC, will have the largest stake of 26 per cent. MRL will keep its level confined to five per cent while the ONGC will be offered up to 20 per cent in the refinery. The combined stake of the three PSUs would be pegged at 50 per cent so that the project remains a non-government company.

Petronas of Malaysia, tipped to be an interested partner in the project, will take a 26 per cent stake so that, eventually, only24 per cent of the equity component needs to be sewn up. This will be offloaded in favour of some strategic/financial investors or the public.

The Nagapattinam project is crucial to IOC as it would mark its foray into the south, a region where its marketing advantage is not as strong as it is in the north. This explains why the Fortune 500 company has been in such a tearing hurry to have formal marketing agreements tied up with both MRL and Cochin Refineries. It has already entered into a five year pact with CRL and is in the running with Bharat Petroleum Corporation to sign a similar one with MRL.