Indian Oil Corporation To Examine U.S. Sanctions’ Impact On Chennai Refinery
A fuel pump stands at an Indian Oil Corp. gas station in Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg)

Indian Oil Corporation To Examine U.S. Sanctions’ Impact On Chennai Refinery


Indian Oil Corporation Ltd. will evaluate the implications of the U.S. sanctions if Iran was to invest in its subsidiary Chennai refinery's Rs 35,700 crore expansion, its Chairman Sanjiv Singh said.

IOC plans to pull down the 1 million tonnes-per-year Nagapattinam refinery of its subsidiary Chennai Petroleum Corp Ltd. and build a brand new 9 million tonnes unit in the next five to six years.

National Iranian Oil Co., which holds 15.4 percent stake in CPCL, is keen to participate in the expansion project, Singh said.

Following the U.S. decision to reimpose economic sanctions on Iran, IOC will examine the impact of NIOC investing further in CPCL.

"We are evaluating that," he said when asked about the impact of the U.S. sanctions on NIOC investing further in CPCL.

NIOC's investment in CPCL was made several years ago and that as such will not draw any impact of the U.S. sanctions but fresh investments in the company need to be studied.

"NIOC is keen to remain committed to investing in CPCL. Now we have to see (the impact of the U.S. sanctions on such a move)," he said. "The (expansion) project has not been approved (by the board) yet."

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After the U.S. reimposed full economic sanctions against Iran beginning Nov. 5, 2018 and ended waivers six months later, India has stopped buying oil from its third-largest crude oil supplier. Prior to the waivers ending on May 2, India paid Iran for oil purchases in rupees. These rupee payments are made into a UCO Bank account of NIOC.

The government had allowed NIOC to use the money it got in the UCO Bank account for paying for commodities Iran buys from India as well as for direct investments in Indian projects. Naftiran Intertrade, the Swiss subsidiary of NIOC, holds 15.4 percent stake in CPCL.

Whether the same money can now be invested by NIOC as its share of equity portion of the expansion project is being evaluated by IOC.

IOC holds 51.89 percent stake in CPCL. The expansion was to originally cost to Rs 27,460 crore but is now estimated to cost Rs 35,698 crore. Officials said CPCL plans to achieve financial closure of the refinery expansion in 2019.

It also plans to build a petrochemicals plant of about 475,000 tonnes per annum capacity. Detailed feasibility report for the expansion project is expected to be completed by June.

CPCL, formerly known as Madras Refineries Ltd., was formed as a joint venture in 1965 between the Government of India, AMOCO and NIOC having a shareholding in the ratio of 74 percent, 13 percent and 13 percent, respectively.

Also read: China Vows Support for Iran Amid Sanctions Dispute With U.S.

In 1985, AMOCO disinvested, following which the government held 84.62 percent and NIOC 15.38 percent. The government later disinvested 16.92 percent of the paid-up capital.

The company was listed in 1994. IOC acquired the government's holding in 2000-01 and holds 51.89 percent stake in CPCL while NIOC has 15.40 percent. CPCL has two refineries with a combined refining capacity of 11.5 million tonnes per annum.

The Manali refinery has a capacity of 10.5 million tonnes per annum and is one of the complex refineries in the country. Its second refinery is located in Nagapattinam at Cauvery Basin. This unit has a capacity of 1 million tonnes per annum.

CPCL refineries produce LPG, petrol, kerosene, aviation turbine fuel, diesel, naptha, bitumen, lube base stocks, paraffin wax, fuel oil, hexane and petrochemical feedstock.

Also read: Indian Oil Marketing Firms At Risk As Government Seeks Higher Returns, Fitch Says

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