IOC has suggested that MRL evaluate the assets of its 0.5-million Cauvery Basin refinery (CBR) in Tamil Nadu 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 10 per cent stake for the Rs 8,000-crore refinery, based on a 3:1 debt-equity ratio.

MRL, incidentally, has planned a jetty for the CBR but IOC believes this is a futile investment in the context of the Nagapattinam refinery. "The CBR is a mere 0.5 million tonnes but this project is a whopping nine million tonnes where a jetty would be of little use," sources say.

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.

Sources say that MRL is yet to take a decision on the IOC proposal. This could also be due to the fact that the stand-alone refinery is working on the expansion of its other facility in Manali near Chennai from 6.5 million tonnes to 9.5 million tonnes. There have also been reports that MRL is still not certain if it makes sense to participate in the equity of the Nagapattinam refinery given that there could be a surplus petro-product situation in the south.

IOC has already indicated that it will hold 26 per cent in the project and if its proposal is accepted, MRL will account for 10 per cent. Petronas of Malaysia and Marubeni of Japan are reportedly in the race for picking up 26 per cent while a portion of the equity (up to 24 per cent) is expected to be subscribed by the Oil and Natural Gas Corporation. The balance will be offered to public and financial institutions.

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 lost out to Bharat Petroleum Corporation for finalising a similar one with MRL.

The Nagapattinam refinery was originally envisaged as a three-million-tonne export-oriented unit but its status and capacity were subsequently revised to keep in line with world trends in refining. IOC and MRL were the original co-promoters of the project and Petronas later expressed its interest to participate as a third player.

It was only earlier this year that IOC and ONGC agreed to work together in some key petro-related activities both here and abroad. These include exploration and production, refining and marketing, petrochemicals and power. The boards of the two companies have, in principle, agreed to examine the possibilities of teaming up in three power projects, two petrochemical ventures and two refinery plans.

As per the understanding, the lead partner for the project, be it IOC or ONGC, will account for at least a 26 per cent stake while offering the other up to 24 per cent. This way, the joint venture remains a non-government company but that would not preclude multinationals from picking a 26 per cent stake. This explains the rationale behind the planned equity pattern for the Nagapattinam refinery.