The Rs 3,500 crore facility, scheduled to be operational in 2002, will involve dismantling an existing refinery in Germany and relocating it in India. Nagarjuna Oil is promoted by the Hyderabad-based Nagarjuna Fertilisers.

IOC is also expected to participate in the equity of the refinery to the extent of 26 per cent though this will be done in phases. This is because the PSU will need to consider the fact that it has planned its own refinery in Tamil Nadu towards 2006-07. The Nagapattinam facility, located close to Nagarjuna Oil, will have a capacity of nine million tonnes.

IOC has a relatively weak presence in the south which will be made up through this marketing tie-up. The Fortune 500 company is also tipped to buy out the government's 53 per cent stake in Madras Refineries (MRL). This could tilt the scales in its favour for the southern region and, consequently, put on hold the investment for Nagapattinam.

Interestingly, MRL has a marketing agreement with BPCL which is barely a year old. Whether this will continue should the government dispose of its stake to IOC remains to be seen. Likewise, IOC has a marketing tie-up with Cochin Refineries but this will change when its ownership passes on to BPCL. In that case, there will be a swap of marketing rights where IOC and MRL will get into a new alliance as also CRL and BPCL.

A pipeline was originally planned from Chennai to Madurai for evacuating products from MRL. Now, with Nagarujuna Oil set to be commissioned two years down the line and IOC planning its own refinery, other pipeline routes are being envisaged. One option under review involves a link from Nagapattinam to Tirunelveli passing through Thanjavur, Tiruchi and Virudhunagar. MRL's products could instead be diverted towards Sangareddi in Andhra Pradesh from Chennai through a new pipeline.

Reports doing the rounds indicate that Nagarjuna Oil has been in talks with some global giants for a possible stake in the project. The obvious bait is the fact that the oil sector will be completely deregulated in April 2002 which will assure attractive returns in marketing. Cost estimates also show that other refineries with similar capacities have an outlay of at least Rs 6,500 crore while Nagarjuna Oil is barely Rs 3,500 crore.

Union minister of state for petroleum and natural has, E Ponnuswamy, had stated at a recent press meet that IOC's Nagapattinam refinery would be commissioned irrespective of the fact that Nagarjuna Oil was setting up a project in nearby Cuddalore. He dismissed notions that there would be surplus refining capacity in the south given that MRL already has a 6.5 million tonne refinery (which will be expanded to 9.5 MMT) in Manali near Chennai.

Kuwait Petro tipped for stake in Nagarjuna Oil
Kuwait Petroleum Corporation (KPC) is the latest name doing the rounds as strategic partner in Nagarjuna Oil. KPC, it may be recalled, was the original co-promoter of the Paradip refinery along with IOC but recently withdrew from the project. The company is reportedly interested in picking up a stake in Mangalore Refinery and Petrochemicals, the joint venture of Hindustan Petroleum Corporation and the AV Birla group of companies.

Nagarjuna Oil had also held discussions with Caltex of the US though there has been no news on further developments. In the case of KPC, a tieup with a stand-alone refiner would not only give marketing rights but ensure a ready supply source for its crude.