The state-run company is boosting capacity at its Nagapattinam facility by nine-fold to process 9 million tons per year and the investment is Naftiran Intertrade Co.’s share of the 275 billion rupees ($4 billion) expansion plan, Managing Director S.N. Pandey said in an interview. The rest of the investment will be through debt and equity, including fresh capital from its main founder Indian Oil Corp.
“We will achieve the financial closure in 2019,” Pandey said. “We don’t see any issue in debt raising. We have already talked to many bankers.”
Indian Oil’s chairman Sanjiv Singh also said on Wednesday that Iran has not ruled out participating in the expansion at Chennai refinery.
Iran’s participation has been questioned after India cut back its Iranian crude oil imports following U.S. sanctions.
However, Singh’s comments come a few days after India exempted rupee payments to the National Iranian Oil Co (NIOC) for crude oil imports from a withholding tax.
The exemption will allow Indian refiners to settle about $1.5 billion of outstanding payments to NIOC through direct rupee payments.
“Iran has always been positive with this (the new rules). I think they should be able to invest,” Singh said.
It has been expected that these payments could help Iran invest in Indian projects, particularly the Chennai Petroleum Corp expansion.
While Naftiran’s investment will ease the Chennai Petroleum’s fund raising task, it will ensure Iran maintains its grip in India, where surging fuel demand has turned it into a prized market for global oil producers.
For India, Tehran has been a reliable and cheap source of crude extending favorable credit terms, a key driver for New Delhi to convince Washington to grant some exemption from sanctions that restrict trade with the country.
Surging demand in India prompted Russia’s Rosneft Oil Co. PJSC to acquire a private refiner in 2017, while Saudi Arabian Oil Co. and Abu Dhabi National Oil Co. have committed investments in a proposed plant as the nation adds capacities to fulfill fuel consumption needs that are expected to outstrip all other nations in the decades ahead.
Naftiran, an affiliate of state-run National Iranian Oil Co. holds 15.4 percent of Chennai Petroleum, while Indian Oil owns 51.9 percent.
Apart from boosting capacity, Chennai Petroleum is building a petrochemicals plant of about 475,000 tons per annum capacity, Pandey said.
The new plants will enable the refiner to process dirtier and cheaper crude, apart from making more value added products. This year, it imported Iraq’s Basrah heavy crude for the first time and is now looking get shipments from the US, Pandey said.
The detailed feasibility report for the expansion project, that includes the petrochemicals plant, is expected to be ready by June. “Tentatively by December 2022, the whole complex will be ready,” Pandey said.
Chennai Petroleum operates a bigger refinery at Manali near the city of Chennai, with capacity to process 10.5 million metric tons of crude annually, or about 210,000 barrels a day.
Bloomberg and Reuters contributed to this story.