Assam Gas Cracker Project: A Profile

(Represents the status of the project, as of April 2001)

Project Scope

The Assam Gas Cracker Project envisages the setting up of facilities for the manufacture of two lakh tonnes of ethylene annually using petroleum gas as feedstock.

Project Implementing Agency

The project is being implemented by Reliance Assam Petrochemicals Ltd (RAPL) – a joint venture between Reliance Industries Ltd (RIL) and Assam State Industrial Development Corporation (AIDC). In the ultimate equity holding pattern envisaged, RIL would have a 40 per cent equity stake in RAPL while AIDC would own 11 per cent. The remaining 49 per cent of the equity would eventually be offloaded to the general public.

Project Funding

The total outlay of the project is Rs.4,300 crore with a debt-equity ratio of 2:1. The cost of the project at the time of conception was Rs.3,600 crore. Major lenders to the project include financial institutions such as Industrial Development Bank of India (IDBI), which has sanctioned Rs.1,000 crore assistance to the project. The Central government has approved a one-time subsidy of Rs.377 crore¹ to the project and a Rs.72 crore subsidy to Oil India Ltd for the supply of gas to the project.

Raw Material Supply

Petroleum gas, which is the main feedstock for the production of ethylene, would be supplied by Oil India Ltd (OIL) and Oil & Natural Gas Corporation (ONGC). OIL would be providing five million metric standard cubic metres per day (mmscmd) of the total requirement of 6.4 mmscmd. ONGC would be supplying the remainder.

Present Status

RAPL expects to commission the project by the end of 2004.

History of the Project

The Assam Gas Cracker Project was conceived by the Assam State Industrial Corporation (AIDC) in 1984. It was only in January 1991 that AIDC received the letter of intent from the Central Government permitting the former to set up the project in joint venture with a private sector partner.

When conceived, the project envisaged a capacity of three lakh tonnes of ethylene. This has now been scaled down to two lakh tonnes, keeping in mind the quantum of petroleum gas supplies available.

The four year-long search for the private sector partner ended in 1994 when Reliance Industries Ltd (RIL) evinced interest in participating in the project. A new company, Reliance Assam Petrochemicals Ltd, was formed in 1994 as a joint venture between RIL and AIDC. In the ultimate equity-holding pattern of RAPL, RIL will have a stake of 40 per cent and AIDC, 11 per cent. The remaining 49 per cent would be offered to the public.

In February 1995, the State government of Assam handed over 350 acres of land² (out of the total requirement of 1,000 acres) to RAPL. This land, located at Tengakhat in the Dibrugarh district, was given free of cost. Subsequently, the foundation stone for the project was laid by the then Prime Minister of India, Mr P V Narsimha Rao, on 21 November 1995.

For a period of around five years after laying the foundation stone, several issues began to stymie the project progress. However, two favourable developments transpired in the interim, although they did not have a direct bearing on the project progress. One, the Letter of Intent (LoI) was transferred to the name of RAPL from that of AIDC in February 1997 and two, the Union Cabinet cleared the project in June 1997.

Coming back to the difficulties faced by the project, the three major roadblocks that took years to surmount included uncertainty over feedstock supplies, ownership of gas separator plant and strong protests from the Indian Air Force. The last hurdle compelled RAPL to ultimately relocate the project.

Feedstock Supplies:

It took several years for RAPL to receive firm commitment on feedstock supplies. As per the original plans of the Union Ministry of Petroleum, OIL and ONGC were to supply petroleum gas to the project as feedstock. In 1996, the two public sector units stated that between them they could supply 6.4 msmd of gas, which would be adequate to produce around 2.3 lakh tonnes of ethylene.

As a consequence, the nameplate capacity of the cracker plant was downsized from 3 lakh tpa to 2 lakh tpa. However, RIL was dissatisfied with the feedstock supply level since it would inhibit RAPL’s plans of eventually expanding the ethylene capacity to 4 lakh tpa. The Petroleum Ministry suggested that a naphtha could be used as an fuel, in addition to petroleum gas. While Reliance agreed to this in principle, it sought a commitment from the Ministry for an assured supply of 40,000 tpa of naphtha³.

Separator Plant

As per the original project plans, the Union Petroleum Ministry had proposed the setting up of a separate gas separator plant, which on completion, would be handed over to Oil India Ltd (OIL) and Gas Authority of India (GAIL). Reliance Industries opposed this move since it wanted to wield control over the feedstock supplies. Reliance even threatened to walk out of the main project if it were not given controlling interest in the accompanying gas separator project. Subsequently, the Ministry relented and decided to offer a 26 per cent stake to Reliance.

Meanwhile, GAIL, in an independent move, had already begun the implementation of a gas separator plant at Lakwa, around 100 kms away from RAPL’s gas cracker site. This rendered the proposed gas separator plant for the Assam Gas Cracker project redundant. An understanding was reached between GAIL and RAPL, during 2000, wherein GAIL’s plant was handed over to RAPL. The parameters governing the transfer are, however, not completely known.

Relocation of project site

During 1996, even after the foundation stone for the project was laid, the Indian Air Force raised serious objections about the project location since it was proximate to IAF’s installations. The search for an alternative project site culminated with Lepetkota being finally chosen. The new site, also in the Dibrugarh district, is five kms away from Tengakhat -- the old project site.

Recent Developments

The protracted impasse over the project was broken in 2000 when RAPL signed the important gas supply agreement (GSA) with Oil India Ltd on 19 October 2000.

As per the GSA, OIL has agreed to supply five mscm of gas (out of the total requirement of 6.4 mscm) at a concessional rate of Rs.600 per 1000 cu.metre, for a period of fifteen years⁴. A similar agreement was reached with ONGC, which would be supplying the remaining 1.4 mscm, in November 2000⁵.

During late November 2000, the district administrative authority of Dibrugarh prepared a draft scheme for the rehabilitation of 56 permanent families that would face dislocation by the project. Besides, relocation of 150 families, indirectly affected by the project, was also being considered.

Out of the total land requirement of 1,000 acres, a nominal 80 acres were handed over to RAPL, as of early December 2000, while the remaining was expected to be handed over by 31 December 2000. RAPL had then expressed confidence of commencing work on 1 January 2001.

Meanwhile, RAPL has begun spadework on the project in the form of conducting environmental impact assessment, evaluation of process know-how and identification of foreign technology suppliers.

RAPL has committed to complete the project within 44 months from the time that the entire land requirements are met. Assuming the Assam government has handed over the entire land by the stipulated date of 31 December 2000⁶, the project is expected to be commissioned by the third quarter of 2004.

Meanwhile, during April 2001, the Parliamentary Standing Committee on Petroleum & Chemicals asked the Government to conduct monthly reviews and commence work on the Rs.4,300 crore Assam gas cracker project before 15 August 2001. The Committee feels that the purpose of the project, which was to uplift North-East India in terms of investment and employment, has far from been fulfilled.

It is estimated that more than 25,000 people will be directly or indirectly employed through the project. Apart from offering employment, the project is also expected to see the engendering of several ancillary activities – mainly plastic manufacturing.

Footnotes

1

The project subsidy has been given considering the inherent difficulties in setting up a project in Assam such as prolonged rainy season resulting in lesser working days, difficult geographical terrain, high transportation costs, etc.

2

Since the project site was subsequently relocated to Lepetkota, this land was rendered useless.

3

The final status on the naphtha fuel agreement is not clear. However, the project is progressing with an envisaged capacity of two lakh tpa, based on committed supplies of petroleum gas by OIL and ONGC.

4

The current price of petroleum gas is around Rs.1,700 per 1000 cu. metres. OIL would be compensated for the price differential through a one-time Central government subsidy of Rs.72 crore.

5

No confirmation to this effect was available till April 2001.

6

No confirmation to this effect was available till April 2001