Richa Mishra

New Delhi, Feb.1

OIL and Natural Gas Corporation (ONGC) is expecting the due diligence and valuation report on its proposed plan to acquire stake in SPIC Petrochemicals, the petrochemicals business of SPIC soon.

Ernst & Young, which has been appointed as a financial advisor by ONGC, is expected to submit its report shortly, company sources said. There are a lot of issues to be examined, sources said, adding that once E&Y submits its report, the company would review the suggestions and then take it to company's board for approval.

E&Y is the lead advisor for ONGC. Engineers India Ltd (EIL) and law firm Amarchand & Mangaldas have been appointed as technical and legal consultants respectively for conducting due diligence. Asked whether the financial advisors would also be examining the prospects of complete buyout, the ONGC official said the prospects could not be ruled out. Indications are that the financial advisors are also doing valuation of the project

Following the Petroleum Ministry advice to explore involvement in SPIC Petrochemicals project, ONGC has taken the initiative. It has shown keen interest in reviving the project, which has been hanging fire due to the dispute between SPIC and the Chennai Petroleum Corporation Ltd (CPCL).

Though both the sides had since resolved the dispute through an out-of-court settlement, SPIC, a sick company itself, was unable to revive the project on its own and has been looking for a new joint venture partner.

The ONGC Chairman, Mr Subir Raha, and his SPIC counterpart, Mr A.C. Muthiah, had earlier gone public saying that both sides were in discussions to revive the ailing project. SPIC Petrochemicals was to put up a purified terephthalic acid (PTA) plant and a polyester filament yarn (PFY) project at Manali near Chennai.

Earlier, attempts to revive the project have not yielded much result with almost Rs 1,000 crore locked up in it. When the Madras High Court had passed an injunction in October 1997, Rs 946 crore was locked in the project. Of this, SPIC's contribution was Rs 252 crore and the lenders had brought in Rs 694 crore.

At that stage, the PFY plant was more than 75 per cent complete, or about 12 months from commencing production. The PTA plant had progressed 11 per cent, or about two years away from production.

(This article was published in the Business Line print edition dated February 2, 2006)
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