Nagarjuna Oil Corporation’s (NOCL) refinery project, said to be one of the biggest private investments in Tamil Nadu, has gone into liquidation despite several attempts at reviving it.
A section of stakeholders and insiders The Hindu spoke to pointed out that the high liquidation value fixed in the insolvency process was a dampener, while a few others claimed that some oil firms did not acquire the project despite knowing its value, before NOCL came under the insolvency code.
NOCL was in the process of setting up the refinery in Cuddalore, on the East Coast, at a cost of ₹3,500 crore. The project was to have beeen commissioned in 2012.
Project cost escalation
However, time and cost overruns caused the project value to spiral to ₹15,000 crore.
In December 2011, the project site was hit by a cyclone and work was stalled.
“The cyclone crossed the site on the morning of December 30, 2011, damaging two oil tanks and the jetty under construction. There was no damage to the refinery. But the work could not be restarted after that due to paucity of funds,” said a company insider, not wanting to be named.
A few public sector oil firms, which were initially interested in acquiring the project, backed off due to other priorities, said the official of another firm.
“An oil PSU sent a five-member team headed by its executive director to evaluate NOCL and they spent three days at the site. Despite a favourable report, the firm’s management decided to invest in an overseas project and dropped its plan to buy NOCL,” he added.
Yet another oil PSU, which too showed interest in buying the refinery, dropped out in the last minute after deciding to invest in another poll-bound State. Between 2014 and 2017, the promoters tried to revive the project, but failed because of dubious investors, the official said. After all efforts failed, NOCL came under the insolvency and bankruptcy code in July 2017.
Even after three rounds of bids where invited, no solution was reached and the company ultimately ended up in liquidation.
An official of another company said that the high liquidation value (₹1,450 crore) fixed for the project’s revival was a major dampener for investors.
The liquidation value is the minimum price for lenders to accept a bid and recommend it to the National Company Law Tribunal.
“NOCL’s case was unique when compared with most other ongoing insolvency cases. While others are running companies with a revenue stream, NOCL needs an investment of ₹12,000 crore and a three-year project work, before the new owner starts making money,” the official said.
This was not factored in and the liquidation value was fixed at 70% of the principal amount outstanding as on July 25, 2017.
State support
“It is a sad end to a project, which received the support of whichever party was in power in the State. The government allotted almost 600 acres of land additionally to NOCL in 2011. In 2015, the government approved a liberal incentive package to NOCL at its Global Investors’ Meet, despite the project remaining stalled since 2012,” the official said.
