The much delayed construction at Essar Oil refinery has received a shot in the arm with Larsen & Toubro (L&) providing "guarantee" to undertake the physical completion of the 10.5 million tonne per annum refinery at Vadinar in Gujarat.
Jagdeesh Mehta, managing director & chief executive officer of Essar Oil, said, "L&T has already undertaken three detailed due diligence and has guaranteed to bring an additional Rs 100 crore for physical completion of the project if required."
Mehta pointed out that ABB, which will supply 90-95 per cent of the refinery equipment, has estimated that the proposed construction would incur an expenditure of Rs 1,145 crore.
Against this, L&T, following its due diligence, has estimated the cost to complete the physical construction of the refinery at Rs 1,250 crore.
In case, ABB is unable to finish construction work within its estimated cost, L&T would finance the construction upto the tune of Rs 100 crore.
ABB has already agreed that it will bring in a maximum of Rs 905 crore as part of a completion guarantee. The L&T guarantee will ensure project completion.
Explaining the need for L&T guarantee, Mehta said, "There is an existing problem in the system, whereby a foreign company cannot do physical completion of the refinery and so L&T was roped in."
ABB will also bring in an additional Rs 400 crore as quasi-equity in the total equity of Rs 2,148 crore of the Essar Oil refinery project. The Ruias have brought in Rs 211 crore through internal accruals, while Rs 100 crore was borrowed from the energy division of the company.
Once financial institutions disburse the loan component, the company will begin construction at the site. Mehta pointed out that it would take 18 months to commission the first unit and the project will be completed within 24 months.
Mehta indicated that "it would take anywhere between 3 and 6 months to commence actual construction at the site."
A fresh documentation is being prepared by Crawford Bailey which would be signed by the promoters, ABB Lummus, L&T and the FIs, he added.
