ONGC may buy out GAIL in Gujarat's Dahej petrochemical project.

State-owned Oil and Natural Gas Corp (ONGC) may buy out gas utility GAIL India Ltd. in its Dahej mega petrochemical project in Gujarat to take full control of the recently commissioned plant.

GAIL had in 2008 picked up 19 per cent stake in ONGC Petro-additions Ltd. (OPaL), which was then building the mega petrochemical complex at Dahej in Gujarat.

But the project, which started in 2006, faced major cost and time overruns, which forced GAIL to restrict its equity contribution to the original Rs. 9.96 billion. This investment in the expanded project cost meant that the gas utility's stake dropped first to 17 per cent, then to 15.5 per cent and now about 9 per cent, sources privy to the development said.

'It doesn't make any business sense to hold such a small percentage stake and it is best that ONGC buys out GAIL in the project,' they said.

The 1.1 million tonnes plant, which at the time of conception was projected to cost Rs. 124.4 billion, got completed only last year for about Rs. 300 billion.

After GAIL in 2008 agreed to pick up 19 per cent stake in OPaL, the project cost was in 2010 was revised to Rs. 195.35 billion. It was couple of years later further revised upwards to Rs. 213.96 billion with December 2013 set as the commissioning date.

Sources said when project cost was revised to Rs. 195.35 billion, GAIL decided to restrict its participation to 17 per cent. This was done because the company's board had powers to approve an investment of only up to Rs. 10 billion.

Consequently, it decided to make an equity contribution of Rs. 996.28 crore towards the 17 per cent stake, they said.

But when the project cost went up further to Rs. 213.96 billion, the promoter's equity contribution increased from Rs. 58.60 billion to Rs. 64.18 at 70:30 debt-equity ratio.

GAIL, sources said, is not inclined to make any additional equity contribution and has decided to cap its investment in OPaL at the capital it has already approved Rs. 9.96 billion. This, in the revised project cost, fetched it only 15.5 per cent stake.

Now that the project cost almost touched Rs. 30,000 crore, that investment is equivalent to only about 9 per cent stake.

Sources said GAIL would, however, continue to hold rights to market 38 per cent of the polymer and other chemicals produced by OPaL even at the reduced equity stake.

ONGC has funded almost all of the enhanced project cost after GAIL as well as Gujarat State Petroleum Corp (GSPC), which was to originally hold 5 per cent stake, did not make more equity contributions.

ONGC had attributed the increase in project cost primarily to additional cost of Phase-II captive power plant and increase in cost of building the Phase-I electricity generating unit.

BS