Indian Oil reassesses ₹33,000 crore Tamil Nadu refinery, eyes petrochemicals complex

New Delhi: Indian Oil Corp is reassessing its proposed ₹33,000 crore greenfield refinery in Tamil Nadu after an internal evaluation raised concerns about the project's economic viability, said people familiar with the matter. The state-run refiner is instead exploring the possibility of converting the venture into a standalone petrochemicals complex, the people said.

Indian Oil's board approved in January 2021 the construction of a 9 mtpa greenfield refinery at Nagapattinam in Tamil Nadu at an estimated cost of ₹29,361 crore. The project was to be developed through a joint venture, with Indian Oil and Chennai Petroleum Corporation Ltd (CPCL) each holding 25%, and financial institutions 50%.

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Three years later, in March 2024, Indian Oil revised the project cost to ₹33,023 crore and approved raising its stake in the JV to 75%, with CPCL holding the remaining 25%. The companies already have the land for the project.

Indian Oil also sought financial support from the Centre for the project, but it wasn't approved, the people said.

Industry executives said standalone refineries are becoming increasingly difficult to justify due to demand uncertainty, high capital costs and long payback periods. This is leading companies to increasingly integrate refining projects with petrochemicals. A standalone petrochemicals complex would require lower investments besides offering higher long-term returns than a conventional refinery, the people said.

Greenfield refinery projects also typically rely on government support, such as tax incentives or subsidised land from the Centre or state governments, to make their economics viable.

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BPCL, meanwhile, is moving ahead with its proposed 9-11 MTPA greenfield refinery-cum-petrochemical complex in Andhra Pradesh, backed by a generous incentive package from the state government. The project, conceived just two years ago, is expected to cost about ₹1 lakh crore, with likely participation from Saudi Aramco.

HPCL recently commissioned a 9 mtpa greenfield refinery-cum-petrochemical project in Rajasthan.