A better balance sheet, green plans behind RIL's change of tack for oil biz

Reliance Industries’ (RIL’s) decision to not carve out its oil-to-chemicals (O2C) business into a separate company and get in Saudi Aramco as partner may have a lot to do with a realignment that is needed to strengthen its green energy foray.

At the same time, its better debt position (with cash and cash equivalent at Rs 2.59 trillion), surpassing its gross debt of Rs 2.55 trillion, places it in a better financial position, obviating the need to get any equity support.

RIL now plans to take in partners in its new energy and specialty chemical businesses. This means its subsidiaries will take different directions based on their requirement for technology (tech) tie-ups. It has already invested $1.2 billion in acquisitions in REC Solar ($770 million) for polysilicon, cell and module manufacturing, Sterling and Wilson ($385 million) and Nexwafe ($29 million) for monocrystalline silicon wafers, Stiesdal for electrolysers, and Ambri ($50 million) for long-duration battery tech.

Moreover, Saudi Aramco is refocusing its business to a net-zero carbon level by 2050, which means both RIL and the Saudi state-owned company will need to align their petroleum business to the new global reality of reducing carbon footprint.

Saudi Aramco wants to cut emissions from its operations in oil production and processing, which comes under the purview of Scope 1 and Scope 2. Cutting down emissions from their products that come under Scope 3 may not be easy for both companies.

Besides the adoption of greener ways, Covid-19 added to the unpredictability in the fuel market.

“There has been unprecedented volatility in the petroleum market. A lot has changed since RIL-Saudi Aramco announced their partnership in 2019. RIL is now re-evaluating its portfolio,” said a company executive.

RIL and Saudi Aramco signed a non-binding letter of intent in August 2019 for a potential 20 per cent stake acquisition by Saudi Aramco in the O2C business of Reliance. A company — Reliance O2C — to implement a scheme of arrangement between RIL, its shareholders, and creditors was also registered.

The O2C business would have included refining, petrochemical (petchem), fuel retail, aviation fuel, and bulk wholesale marketing businesses. It would have included its assets, liabilities, and property, including its facilities in Jamnagar, Dahej, Hazira, Nagothane, Vadodara, Patalganga, Silvassa, Barabanki, and Hoshiarpur.

Under its new energy and materials plan, Dhirubhai Ambani Green Energy Giga Complex, an integrated renewable energy manufacturing hub, will come up on Jamnagar premises. The complex would otherwise have gone to the O2C subsidiary, but will now include an integrated solar photovoltaic module factory for production of solar energy, an energy storage battery factory, an electrolyser factory for production of green hydrogen, and a fuel cell factory for converting hydrogen into motive and stationary power.

Jamnagar will be the centre of RIL’s new businesses of renewable energy and new materials, supporting its 2035 net-zero carbon commitment. The existing infrastructure will be used for the new business.

Although RIL’s late Friday night statement said it would be Saudi Aramco’s “preferred partner for investment in the private sector in India”, Saudi Aramco has tie-ups with public sector companies for a refinery on the west coast, as well as with Oil and Natural Gas Corporation for sale and trading of petchem businesses.

RIL will also collaborate with Saudi Aramco and Saudi Basic Industries Corporation for investments in Saudi Arabia.

RIL will also support independent manufacturers with right capabilities, with Rs 15,000 crore ($2 billion) of capital to be part of this nationwide ecosystem.