Netoil expects financial closure by October for acquiring Nagarjuna refinery

The 6 mn tonne refinery project was delayed due to damages caused by a cyclone some years back and also hit by the global economic slowdown later

Singapore-based Netoil has said it is negotiating with the minority shareholders of Nagarjuna Oil Corporation (NOCL) to buy its refinery at Cuddalore in Tamil Nadu.

Netoil has agreed to acquire the project for Rs 3,600 crore and has signed a term sheet with major investors, the Nagarjuna Group, which holds 47 per cent, and Tata Sons and Tata Petrodyne, which hold 25 per cent in NOCL.

Sources in NOCL said the company required interim funding of Rs 24 crore to pay the salary backlog since November 2014. Service providers at the site were also threatening NOCL staff over unpaid dues, they added. The sources alleged the issue of back wages and vendor dues had not been addressed by Netoil or banks that had lent money to NOCL.

Failure to clear dues may force the Tamil Nadu government to cancel the memorandum of understanding, said an NOCL employee. Government officials were not available for comment.

Responding to the allegation, Netoil said, "We are not recognised as investors by the shareholders and lenders of NOCL. There is a restructuring process that needs to be completed. The company is negotiating with minority shareholders. It is not a question of Rs 24 crore, considering the company's wealth and seriousness it want the project to be up and running."

"We are seriously considering to take over the project. So far $8 million have been spent for financial, technical and legal due diligence. We hope to do the financial closure by end of October," said the company.

An email sent to SBI, the lead banker to NOCL, went unanswered.

Netoil had in April made an offer to KS Raju, chairman of the Nagarjuna Group, to bring in an advance of Rs 66 crore to pay the back wages and dues to vendors. Later it reduced this to Rs 24 crore as a short-term loan but even this was not provided to the company, NOCL sources said.

NOCL staff numbering 170 (150 at Cuddalore Site and 20 at Chennai Office) have not been paid salaries since November 2014, he added. Service providers at the site including transporters, diesel suppliers, housekeeping contractor etc have been physically threatening the staff for non-payment of their dues.

The 6 million tonne refinery is the first phase of a Rs 25,000 crore project in which the total capacity was expected to be around 12 million tonne, according to reports. The project was delayed due to damages caused by a cyclone some years back and also hit by the global economic slowdown later. Around 15 lenders have invested in the project and later the Banks sought Reserve Bank of India's dispensation in view of the assets likely to be classified by RBI as non-performing(NPA).

An official from the company said in Net Present Value (NPV) terms, if the VAT refund is Rs 18,000 crore, the company has to repay only Rs 15,000 crore in today's value. In other words, the company will receive its entire entitlement of VAT refund of Rs 18,000 crore at the rate of Rs 3,000 crore every year in the first six years after commissioning.

The company can utilise around 80 per cent of this Rs 3,000 crore, ie. Rs 2,400 crore every year for any purpose it desires, e.g. repay the debt, go in for expansion and modernisation etc. The company needs to keep only the remaining 20 per cent or Rs 600 crore in FD for 16 years and that is enough to repay Rs 3000 crore plus 0.1 per cent interest after 16 years, explains a senior official, who didn't want to be identified.