The proposed petrochemical complex at Kakinada in Andhra Pradesh, a joint project of GAIl and HPCl, seems to have hit a roadblock with the Centre asking the state government to pay Rs 5,000 crore upfront in the form of viability gap funding (VGF).
Establishing a greenfield crude oil refinery and petrochemical complex has been mandated under Schedule XIII of the Andhra Pradesh Reorganisation Act, 2014, which paved the way for the creation of Telangana state.
The complex at Kakinada, East Godavari district, is proposed to be jointly set up by GAIl and HPCl, both central PSUs.
After a feasibility study by Engineers India ltd, GAIl and HPCl signed a memorandum of understanding with the AP government during the Partnership Summit in January 2017 for setting up the 1.5 MMTPA petrochemical complex on a 2,000-acre site in the Kakinada Special Economic Zone.
But the Rs 30,000-crore project did not take off with the Centre and the state squabbling over the VGF, said a top official.
The proposed complex, with a cracker unit, was supposed to produce ethylene and its derivatives. “SBI Caps did a preliminary financial appraisal and concluded that with a debt-equity ratio of 2:1, the project will yield internal rate of return of 9.8 per cent as against the hurdle rate (the minimum rate of return on a project) of 15 per cent.
“To bridge this gap, viability gap funding in the form of an interest-free loan of Rs 1,438 crore per year has been suggested for a 15 year period beginning from the Project Zero date,” the official said.
Following a meeting between Chief Minister Chandrababu Naidu and GAIl authorities, it was decided that SBI Caps would “revise” the financial model pegging down the power and water supply rates, he said.