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The Uncertain Case of OPaL

 Vijay Merchant
The OPaL dual-feed cracker

ONGC Petro-Additions Limited (OPaL), the special purpose vehicle (SPV) of Oil and Natural Gas Corporation (ONGC) has been in the news for quite some time now. The joint venture enterprise promoted by ONGC, India's largest oil company, and co-promoted by oil majors Gas Authority of India Ltd (GAIL) and Gujarat State Petroleum Corporation (GSPC) created a stir in the petrochemical world with its large dual feed cracker unit (DFCU), which has a capacity to produce 1.1 million mt/year of ethylene and 400,000 mt/year of propylene, and associated units that include a Pyrolysis Gasoline Hydrogenation Unit, Butadiene Extraction Unit and Benzene Extraction Unit.

Other highlights of the project are the two 360,000 mt/year high-density polyethylene/linear low-density polyethylene (HDPE/LLDPE) swing units, and HDPE and polypropylene (PP) units having a capacity of 340,000 mt/year each.

After start-up, sometime in 2015, OPaL will be able to gradually ramp up its production to 1.1 million mt/year of PE, 340,000 mt/year of PP, 150,000 mt/year of benzene, 115,000 mt/year of butadiene and 165,000 mt/year of pyrolysis gasoline.

Pros

  • 13ywdpLJ9iEA93BtCwez2w8zXFPWxoDota
  • Strong support from both central and state Government
  • Feedstock securitization from ONGC
  • Strategic location

Cons

  • Running behind schedule
  • Talks failed with Saudi Aramco and PIC
  • Project cost escalated from Rs. 12,440 crore to Rs. 21,396 crore
  • Raw water supply issue

The popularity of PVC windows is increasing in India, particularly in major metro cities. From less than 1.5 kt in 2002-03, the consumption of PVC in windows increased three times to 4.6 kt in 2006-07. During the current fiscal year, the consumption is estimated to reach 26 kt. Furthermore, the fact that the development focus has now shifted to Asia has led world-renowned window manufacturers to set up their fabrication units in India and by 2016-17, the consumption of PVC in window profiles is estimated to reach 205 kt.

The OPaL project is an ambitious attempt by ONGC to diversify beyond oil exploration and production, and has been imagined to become a leading petrochemical player in India and meet the rising demand for petrochemical products, particularly PE and PP.

The joint venture was incorporated in 2006 at an estimated cost of Rs.12,440 crore with ONGC having a major stake of 26 percent. Since then, the project cost was up-revised twice; to Rs. 19,535 crore in 2010 and Rs. 21,396 crore in 2012. As a result, GAIL, which had originally decided to buy 19 percent stake in the project at a contribution of up to Rs. 1,000 crore, had to cut its equity stake to 17 percent in 2010 and ultimately to 15.5 percent at a capital of 996.28 crore. According to a GAIL executive Polymerupdate spoke with, around 37 percent of the produce from OPaL will be marketed by GAIL.

Since 2010 ONGC has been trying to rope in a foreign partner for at least 25 percent stake in the project. A strategic alliance was envisaged with either Saudi Arabia, Kuwait or Qatar, considering their long-term association with India. However, top Gulf companies such as Saudi Aramco and Petrochemical Industries Company (PIC) had declined the offers for stakes as their demand for auto fuel distribution rights was turned down. In August last year, a leading Indian daily reported that Saudi Aramco, the world's largest oil company, was eyeing a stake of up to 30 percent in OPaL. The deal had reportedly reached advanced stages of negotiations with the Saudi oil company also contemplating a key management role in the project. However, OPaL officials remained tight-lipped when quizzed about the proposed deal, indicating that the talks had failed.

As per latest reports, Kuwait Petroleum Corporation (KPC) has been roped in as a strategic partner in the project and the two companies have signed memorandum of understanding (MoU) through which KPC can purchase up to 26 percent stake in the project. ONGC has also offered the services of 5,000 of its retired employees to the national oil company of Kuwait in an attempt to boost the ties between the two companies. Moreover, Kuwait, India's fourth largest oil supplier, has also agreed to extend the credit period on crude oil sales to India from the current 60 days to 90 days, which would be a shot in the arm for Indian refineries that face tight cash flow problems due to the time lag in the disbursement of government subsidy.

During a recent interview with a top OPaL executive, Polymerupdate was informed that the overall project was close to 90 percent completion while construction of the cracker was completed and is on track for commissioning in July 2014. Construction of the natural gas (C2/C3) component extraction plant has also been completed and full operations are expected to commence in 2015. Thus, the project is almost two years behind its original schedule of commissioning in 2012.

Feedstock for the cracker would be supplied from ONGC's units in Uran, Dahej and Hazira through dedicated pipelines. However, raw water for the project is to be supplied from a desalinization plant in Dahej expected to come online in 2015-2016, and so it is unclear whether the project will be able to start-up before then. Also, it remains to be seen whether the KPC deal gets finalized and ONGC is able to secure the financing it needs whether through foreign investments or the public offering that it intends to launch in 2015.

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