The Rs 6,000-crore Kakinada refinery project of the Mittals-promoted Ispat group, will get off the ground with a 600mw Rs 1000-crore captive power plant. For this, the Mittals have initiated tariff-related negotiations with the Andhra Pradesh government. Ispat has also chosen global consultant Bechtel to conduct a feasibility study for the mega project.
In an interview with Business Standard, Murli D Shukla, chief executive officer, refinery and petrochemicals, Ispat Industries, said the feasibility studies for the refinery project are being conducted by Bechtel, which has considerable expertise globally in the implementation of refinery projects. The refinery project would have a capacity of over 12 million tonne per annum.
The 600mw captive power plant would be a support facility for the refinery which has a power requirement of 100mw. The company plans to sell the remaining 500mw in the state and is negotiating with the government for a commercial tariff structure. The sulphur emitted from the refinery as a by-product would be used as the basic fuel for the power plant, Shukla said. The Mittals are also likely to invite equity participation from global refinery players for the project.
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"While taking on a foreign partner we would ideally like to keep in mind the marketing acumen of the prospective party in this particular business. The reason is that while technologically we would have the expertise to operate the plant, the Ispat group has almost no experience in the marketing of petroleum products," Shukla revealed.
A partnership with an established global player in petroleum products would enable the group to leverage its product portfolio and brand equity in the marketplace, he said.
It is likely that Bechtel, which is preparing the feasibility report for the refinery project, would be roped in as the foreign equity partner as well. Ispat would ideally like the foreign partner to operate the plant in the initial years on a contract basis and simultaneously train the local personnel. Eventually, the foreign partner would phase our its personnel and operate only in the capacity of a joint venture partner.
While on the one hand, the groundwork for the refinery project is being taken with the power plant, the marketing aspects are also simultaneously being tackled. US-based Kemp System has been appointed to undertake a marketing study for the refinery project. "A strong marketing base has to be in place well ahead of time so that when the project is commissioned there is no problem in creating a market for the product," explained Shukla.
Ispat is looking particularly at South India for establishing a market base for its petroleum products and would also be developing prospective export markets for by-products like lubricants, he added.
Shukla was, however, tightlipped on the possible financing arrangements for the project. Any discussion on the finance details at this stage would be premature since the feasibility report was yet to be submitted by Bechtel, he said. However, Shukla was bullish about the future prospects of the project and said it was an essential part of the Mittals' agenda to create a presence in core sectors like power, mining and telecommunications, apart from their core competence, steel. Ispat is also scouting for a prospective ally for setting up the refinery's captive power plant. It could be looking at Swedish major ABB which is already setting up the Mittals' captive power unit at Dolvi, Maharashtra, and an independent power plant at Vemagiri, Andhra Pradesh.