Indian Oil Corporation (IOC) has decided to put on hold a petrochemical complex, originally planned to be set up along with a 15 mln tpa export oriented refinery in Paradip. Several factors have acted in tandem to reverse the original plans of IOC including the global meltdown, the liquidity crunch and a three-fold increase in the combined project cost to over Rs 45,000 crore. IOC has been downgraded by the credit rating agencies owing to Rs 7,000 crore Q2 loss and huge borrowings, and hence is faced with difficulty in arranging the funds for Paradip. The refinery alone is expected to cost Rs 33,000 crore, of which, Rs 19,000 crore will be raised as debt from local and overseas markets. SBI Capital Market has been mandated by the company to arrange the debt.
The company is expecting to complete financial closure for the project as soon as the Reserve Bank allows banks to lend to IOC's Paradip project over and above the prescribed limit. Some of the leading banks had already exceeded their exposure to IOC. The Paradip refinery project was originally conceptualised in 2000, but has been delayed for various reasons. India's largest refiner will now focus on the refinery project for the present and could consider the petrochem project in the second phase. Since last year, IOC's borrowing has more than doubled to Rs 60,000 crore, amounting to an interest cost of Rs 1,600 crores.