HEADLINE: Financial appraisal report on OMPL aromatics complex project
CONTENT: Draft financial appraisal report by SBI Caps on aromatics complex project in Mangalore SEZ xxxxxxxxxxxxxxxxxxxxxxxxxx 1 EXECUTIVE SUMMARY
1.1 Introduction
ONGC-Mangalore Petrochemicals Ltd (OMPL) is a company promoted by Oil and Natural Gas Corporation Limited (ONGC) and Mangalore Refineries & Petrochemicals Limited (MRPL) for setting up an aromatics complex at Mangalore in Mangalore 'Special Economic Zone (MSEZ). OMPL will be a private sector company with ONGC and MRPL holding 49% of the equity capital of the company while the balance 51% equity will be offered to Strategic/ financial investors and retail investors. OMPL was incorporated on 19th December 2006 and its registered office is at 7/24, Cunningham Road, Bangalore, India. Authorized share capital of the Company is Rs 2000 crore (around USD 500 million). OMPL is setting up ban aromatics complex in MSEZ adjacent to the existing refinery of MRPL. The plant will produce 913,700 MT per annum of para-Xylene and about 283,100 MT per annum of Benzene. This complex will get its feedstock, mainly naphtha and aromatic streams from the MRPL refinery. OMPL will enter into a feedstock sourcing arrangement with MRPL for continuous supply of naphtha and other streams. The project is expected to start commercial operation by 2012. 442 acres of land for the complex has already been acquired on long term lease basis from MSEZ and site development work has already started.
1.2 Promoters
1.2.1 Oil & Natural Gas Corporation (ONGC)
ONGC is the largest oil exploration company in India and is the largest "Navratna" PSU . ONGC is the only fully—integrated petroleum company in India, operating along the entire hydrocarbon value chain holding largest share of hydrocarbon acreages in India. ONGC has established 6 billion tonnes of In-place hydrocarbon reserves with more than 300 discoveries of oil and gas, 6 out of the 7 producing basins in the country have been discovered by ONGC. It has cumulatively produced 762.3 Million Metric Tonnes (MMT) of crude and 440.7 Billion Cubic Meters (BCM) of Natural Gas, from 115 fields. The company has 240 onshore, 147 -offshore platforms with 15800 Km onshore pipeline network and 4500 Km offshore pipeline networks.
ONGC is a Fortune 200 company and Platt has ranked ONGC as the top Oil & Gas Exploration & Production (E&P) Company in Asia for 2007. ONGC has been given highest credit rating by domestic rating agencies like Crisil & ICRA, and sovereign rating by Moody.
Table 1- Shareholding Pattern of ONGC
|Shareholders |Shareholding(%) |
|Government of India |74.14% |
|Public/Others |25.86% |
|Total |100.00% |

ONGC is a listed entity and is the second largest Indian corporate by market cap. The company earned a profit of Rs.167 Billion in 2007-08
1.2.2 Mangalore Refinery & Petrochemicals Ltd. (MRPL)
MRPL was promoted in 1988 by AV Birla group along with HPCL. ONGC took over the stake of AV Birla group in March 2003, making it a subsidiary of ONGC. MRPL has been awarded the "Miniratna Category-I" status. The present stake of ONGC in MRPL as on 31/3/08 was 71.62 %. MRPL is a standalone refining company, with sole refinery at Mangalore in the state of Karnataka. Present nameplate capacity is 9.69 MMTPA; however it is consistently operating above 12 MMTPA for the past four years. MRPL is currently carrying out expansion/ upgradation project to expand the refining capacity to 15 MMTPA and become capable of producing Euro IV compliant fuels.
MRPL has been awarded highest credit rating by domestic credit rating agencies ICRA and CRISIL.
|Shareholders |Shareholding (%) |
|ONGC |71.62% |
|HPCL |16.95% |
|Public & Others |11.43% |
|Total |100.00% |

Key financial parameters of the company are given in the following table:
1.3 Support provided by the promoter
ONGC/MRPL as Promoters will provide the following supports for the comfort of the lenders:
(i) 49% Equity Subscription — ONGC/MRPL will subscribe up to 49% of the project equity (including already incurred expenditure of Rs 260 crore already brought in as share application money till 315' March 2009). Entire promoter equity will be brought upfront before any draw down of the loan.
(ii) Tie-up of balance Equity capital — ONGC/MRPL will provide an undertaking to arrange the balance 51 %-equity capital, either through strategic /financial investors/offtakers/IPO.
(iii) Non-disposal of Equity - ONGC/MRPL would provide an undertaking to maintain at least 49% equity in the project at any time during the currency of the loan.
(iv) Completion support - ONGC/MRPL would provide an undertaking to arrange funds to meet any cost overrun.
(v) Feedstock Supply and Stream exchange agreement: MRPL will enter into a feedstock supply and stream exchange agreement with the Company for assured supply of the feedstock and evacuation of certain surplus streams.
Besides the direct support mentioned above, ONGC/MRPL will also provide support in the construction and Operation & Maintenance of the project.
1.4 Board of Directors of the Company
The Management of the company consists of nominees from ONGC and MRPL.
Table 3-Board of Directors of OMPL
|S.No. |Name of director |Designation |
|1 |R.S. Sharma, Chairman & MD, ONGC |Chairman |
|2 |U.K. Basu, MD, MRPL |Director |
|3 |M.M. Chitale |Director |
|4 |I.S.N Prasad |Director |

1.5 Project
ONGC Mangalore Petrochemicals Limited (OMPL) is setting up an aromatics complex to produce 913,700 TPA paraxylene and 283,100 TPA Benzene, from the naphtha supplied by MRPL refinery. The project also includes a captive power plant and other necessary utilities and infrastructure required for the project.
1.5.1 Location of Project
The project is being located inside a Special Economic Zone (SEZ) being developed by Mangalore SEZ Ltd. The project site is adjacent to MRPL refinery from where entire feedstock will be -supplied to the aromatics complex through pipelines. The site is also well connected to national and state highways. It is 12 krns away from the New Mangalore Port and about 15 kms from Mangalore International Airport.
1.5.2 Mangalore SEZ
Mangalore Special Economic Zone (MSEZ) is being developed by IL&FS along with ONGC and KIADB. Mangalore SEZ Ltd. has already got the approval for setting up this SEZ. MSEZ will be spread across 1630 acres and it will be developed as sector specific SEZ. However, MSEZ is in talks with New Magalore Port Trust (NMPT) to induct it as one of the equity partners to be able to get the status of port based multi product SEZ. MSEZ is the developer while OMPL project will act as the anchor tenant for this SEZ. 442 acres of land has been allocated by MSEZ to OMPL for the aromatics complex. MSEZ will provide land to OMPL on long tenn lease basis.
SEZ will provide basic amenities like water, back-up power, effluent treatment and disposal, etc. to all the units coming in its premises. Water will be brought from Netravati and Gun-upur River through a pipeline. Water supply facility may be developed by an independent agency on BOOT basis. Electricity connection will be taken from the state electricity grid. A dedicated corridor will be developed between SEZ and the port for uninterrupted movement of material and manpower. The pipelines for the aromatics complex will come on the rack provided in this corridor. Hence, the company will not be required to acquire any RoU/RoW for setting up pipelines.
MSEZ is also developing residential and commercial facilities for the use of employees other than those of units in MSEZ. SEZ has already acquired 1630 acre land and Rehabilitation & Resettlement (R&R) is in progress. The work on utilities to be provided by MSEZ to OMPL is in progress and will be ready by the time OMPL's petrochemicals project will be ready.
1.5.3 Process
The project will get feedstock supply from existing refinery of MRPL. The process technology for the aromatics plant has been finalized and UOP, USA has been selected as process licensor to provide the process technology. Paraxylene will be produced through adsorption technology of UOP which is a proven technology being used all over the world.
1.5.4 Configuration
The configuration of the aromatics complex is as given in the following table:
Table 4: Process Units of Aromatics Complex
|S.No. |Unit Description |Capacity (MMTPA) |
|1 |Naphtha Hydro Treater (NHT) |0.949 |
|2 |Continuous Catalytic Reformer (CCR) — Platforming unit |0.949 |
|3 |Xylene Fractionation Unit (XFU) |4..636 |
|4 |PX Recovery Unit (PAREX) |4.073 |
|5 |Xylene Isomerization Unit ISOMAR |3.162 |
|6 |Benzene Toluene Extraction Unit (ED Sulfolane) |0.790 |
|7 |Benzene Toluene Fractionation (BTF) |2.198 |
|8 |Trans Alkylation & Dis io ortionation Unit (TATORAY) |1.712 |

The processing units will have enough flexibility to handle variations in the quantity and specifications of feedstock mix.
1.5.5 Material Balance
The material balance of the aromatics plant is given as follows:
Table 5: Material Balance of Plant
|S. |Material |Quantity (TMTPA) |% of Total |
|No. | | | |
|Feedstock | | |
|1 |FCC naphtha |121.0 |7.85% |
|2 |Coker naphtha |181.0 |11.74% |
|3 |St Run naphtha |513.3 |33.29% |
|4 |Heavy naphtha side draw |123.7 |8.02% |
|5 |A7 - rich stream |231.0 |14.98% |
|6 |A8 - mixed xylene |247.0 |16.02% |
|7 |A9 - rich stream |125.0 |8.11% |
|Total |1542.0 |100.00% |
|Products | | |
|1 |Paraxylene |913.7 |59.25% |
|2 |Benzene |283.1 |18.36% |
|3 |Paraffin Rich Raffinate |120.8 |7.83% |
|4 |Fuel gas |173.8 |11.27% |
|5 |LPG |20.0 |1.30% |
|6 |HeavyAromatics - |11.2 |0.73% |
|7 |Hydrogen |19.4 |1.26% |
|Total |1542.0 |100.00% |

1.5.6 Feedstock Supply
MRPL will supply all the feedstock required for this aromatics complex from its refinery. FCC Naphtha will be taken from the FCC unit of the refinery. This naphtha stream is rich in aromatics. Coker Naphtha will be taken from the downstream of Delayed Coker Unit (DCU). FCC and DCU are being set up in the existing refinery of MRPL as part of the expansion program. Capacity of MRPL refinery is being increased from 9.69 MMTPA to 15 MMTPA. After this expansion, MRPL refinery will have three CDU's. Straight Run Naphtha will be taken from all the three CDU's. Heavy Naphtha will be taken from the side draw of 2nd CDU. Aromatic streams will be taken from the Mixed Xylene Unit (MXU) of the refinery. OMPL will enter into a "feedstock supply agreement" and "stream exchange agreement" with MRPL.
1.5.7 Products
Paraxylene is the main product of this aromatics complex. Paraxylene is primarily used to produce Purified.Terephthalic Acid (PTA) which is used to produce polyester and PET chips. Paraxylene will be sold to PTA manufacturers or traders in the free market. OMPL is in dialogue with various prospective offtakers for setting up a dedicated PTA manufacturing plant near the aromatics complex. Such a dedicated downstream facility will assure off-take of paraxylene from this plant. Pipeline will also be set up from the aromatics complex to the New Mangalore Port for export of remaining paraxylene to other locations.
The plant will also produce Benzene which is used in manufacturing of products like phenol, cumene, styrene, etc. Benzene is the building block for the nylon chain. A dedicated pipeline will be set up from the aromatics complex to the port for export of benzene to other locations. OMPL may also enter into off take agreement for Benzene with parties who propose to set up a benzene downstream plant in nearby areas.
The company proposes to tie up long term offtake of the products with credible parties. The company had invited Expression of Interest (EoI) from potential offtakers for Paraxylene and Benzene. The company received very good response for Paraxylene and Benzene off take from more than 15 parties with strong credentials and global footprints. BP, Mitsui, Mitsubishi, MCC PTA, Marubeni,. Itochu, Kolmar International, Vinmar International and domestic polyester players like Indorama, JBF etc. have shown interest in entering into long term off take agreements. The company will be selecting the off takers on basis of competitive bidding. The company has engaged the services of SBICAPS for assisting in the off takers selection. Based on the strong response, the company decided to prioritise the off takers based on readiness of setting up plants using PX/Benzene as feedstock in MSEZ/ nearby. This approach would give maximum benefit of synergy and also ensure commitment (in terms of investment in new plant) by the off taker for using the PX/Benzene produced by OMPL.
Apart from benzene and paraxylene, the aromatics complex will also. produce paraffin rich raffinate, LPG and hydrogen. Paraffin rich raffmate is rich in C5/C6 and it will be used by MRPL refinery for further processing. The aromatics plant will produce marketable LPG which will be transferred to MRPL for sale in the market. Hydrogen produced from this plant will also be absorbed by MRPL for its processes.
Fuel gas and heavy aromatics produced from the aromatics complex will be utilized as internal fuel in the process heaters.
1.5.8 Logistics
Dedicated pipelines will be set up from aromatic complex to NMPT port for evacuation of paraxylene and benzene; and for evacuation up to downstream PTA and Benzene plants. A pipeline will also be laid for supply of feedstock and evacuation of products like raffinate and hydrogen from MRPL. MSEZ or a SPV company promoted by MSEZ will develop a dedicated corridor with pipeline rack from MSEZ to the port facilities. All the pipelines will be laid on this rack.
New Mangalore Port Trust (NMPT) is developing a new jetty at the New Mangalore port After the development of this new jetty, there will be enough capacity available at NMPT for handling products of OMPL. Additionally, MRPL will not be exporting around I MMTPA of naphtha from this port after the commissioning of aromatics complex and also around 2 MMTPA of fuel oil after the residual upgradation project scheduled for completion simultaneously. This will also create spare capacity at the port.
1.5.9 Captive Power Plant
The project includes setting up of a captive power plant to supply power and steam for the process units. The average power requirement of the process units will be 51 MW while the average steam requirement for the process units will be 167.50 TPH. CPP will be a combined cycle cogeneration plant to produce power as well as steam. The captive power plant will consist of two gas turbines (GTG), two heat recovery steam generators (HRSG), one steam turbine (STG) and two utility boilers with following capacities:
Table 6: Capacity of Captive Power Plant
|S. No |Unit Description |Nos |Capacity |
|1 |Gas Turbine and Generator |2 |42 MW |
|2 |Steam Turbine & Generator |1 |30 MW |
|3 |Heat Recovery Steam Generator |2 |240 TPH |
|4 |Utility Boiler |2 |240 TPH |

GTG will have dual fuel capacity i.e. gas/diesel, with gas as the primary fuel. The exhaust gases from GTG will be routed to the HRSG for heat recovery. The HRSG will have supplementary fuel firing provision and burners will be suitable for firing fuel oil. The utility boilers will be dual fired with capability to use Low Sulphur Heavy Stock (LSHS) and Natural gas. Gas will be sourced from the proposed pipeline of GAIL/ Reliance.
1.5.10 Utilities for Aromatics Complex
Besides Captive Power Plant, the Aromatic Complex will have separate facilities to cater to utility requirements of the process units on a standalone basis. Description of various utility systems planned for the Aromatics Complex is given in the following sections:
1.5.10.1 Raw Water System
Raw water requirement of the complex will be about 800 m3/hr. There will be a raw water reservoir of a capacity of 60,000 cubic meters to meet 15 days fresh water requirement.
Demineralized (DM) Water System
DM water plant of 110 m3/hr capacity and two DM water tanks of capacity of 3,000 m3 each will be setup to meet the DM water requirement.
Cooling Water (CW) System
The cooling water system envisaged for the aromatics complex is closed loop recirculation type. The cooling tower will cater to requirements of captive power plant as well as the process and utility block.
Compressed Air System
Compressed air in the plant will be required for instrument air, plant air and service air. Centrifugal compressors will be provided for supply of compressed air. Air dryers will be provided for instrument air system.
Nitrogen System
The project will have Nitrogen Plant to meet the Nitrogen requirement for initial purging, dry out catalyst regeneration, blanketing and flare header purging. There will also be a provision for producing liquid Nitrogen and liquid Nitrogen storage. 1.5.11 Offsite facilities
The offsite facilities envisage adequate storage and transfer facilities for the various feed and product streams commensurate with the capacities of the process units. Storage and pumping capacities for feedstock and finished product shall be based on the material balance of the configuration of the aromatics complex. Offsite facilities are divided into five sections - Feedstock, Product, By-product, Utility and Miscellaneous.
1.6 Project Implementation
OMPL proposes to implement the Project with the assistance of a Project Management Consultant (PMC) through hybrid approach i.e. Process units and CPP under lump sum turnkey (LSTK) and rest of the utilities under EPCM execution mode. The PMC would be primarily responsible for detailed engineering, sourcing of equipment and monitoring of the construction. M/s Toyo Engineering has been appointed as Project management Consultant (PMC) and EPCM for the units proposed to be implemented on conventional basis. Toyo has rich experience of implementing petrochemical plants. M/s UOP has been selected as the licensor for the process units. The Basic Engineering Design Package (BEDP) will be provided by UOP. Based upon this basic engineering, LSTK orders for various process units will be given. OMPL along with PMC is placing orders for long lead items which will be provided to LSTK contractors by the company. This will save the procurement time for the long lead items like reactors, columns, centrifugal compressors, welded type heat exchangers, etc.
ONGC/MRPL has formed a core team of experienced executives who have been deputed to OMPL to manage the project implementation. The team comprises of professionally qualified personnel at various levels belonging to different disciplines like Process, Mechanical, Electrical, Civil, Instrumentation, Materials, Pipeline, Finance etc., besides Corporate Secretarial and other non-official staff members.
1.6.1 Implementation Schedule
Mechanical completion for the project is expected in November 2011 and the unit will be ready for trial run by March 2012. Commercial operation Date (COD) of the aromatic complex is expected to be 151 April 2012. UOP has already been selected as process licensor and Basic Engineering and Design package for all units has already been received. Construction of project is expected to take 26 months from the award of LSTK Contracts for the major process units. Short listing of the parties for LSTK is in progress and award of LSTK will take 4-5 months after receipt of Basic Engineering & Design Package (BDEP) for all units. Implementation schedule for the project is given as follows:
Table 7: Implementation schedule of the project
|S No: |Activi |Timeline |
|1 |Appointment of PMC/Selection of licensor |Completed |
|2 |Order of long lead items |December, 2009 |
|3 |Award of LSTK Contracts |November, 2009 |
|4 |Site grading |December, 2009 |
|5 |Delivery of long lead items |September, 2011 |
|6 |Mechanical completion |November, 2011 |
|7 |Commissioning |March 2012 |

1.7 Cost of Project
Core cost of the project has been estimated by Toyo Engineering based upon the budgetary quotes and in-house data with them for similar projects. The break-up of the core cost of the project is given as follows:
Table 8: Core Cost of Project
|Sl.No. |Projects Cost (Rs. crore) |IC |FC (in USD Mn) |Total |
|1 |Land & Site Development |450.30 |- |450.30 |
|2 |Royalty, Knowhow & Basic En . | |$ 23.69 |114.51 |
|3 |PMC & Others |162.00 |- |162.00 |
|4 |Plant & Machinery ISBL |1,857.66 |$ 177.78 |2,717.05 |
|5 |Plant & Machinery (OSBL) |263.00 |- |263.00 |
|6 |Power Plant |525.00 |- |525.00 |
|7 |EPCM portion cost |672.86 |$ 3.73 |690.90 |
|8 |Site Enabling Facilities |32.92 |- |32.92 |
|9 |Pre-operative Expenses |65.00 |$ 6.23 |95.13 |
|10 |Start-up & Commissioning Expenses |10.00 |- |10.00 |
| | | | | |
|11 |Deduct : Karnataka VAT/WCT exemption |88.22 |- |88.22 |
| | | | | |
| |Total Core Cost |3,950.52 |$ 211.43 |4,972.59 |

* Deduction is on account of KVAT, WCT and Entry Tax exemptions
Since the project is being set up in Special Economic Zone (SEZ), there will not be any custom or excise duty payable on the capital goods. State government taxes like KVAT, Entry tax and Work Contract Tax (WCT) have also been deducted from the project cost as the guidelines for the same is pending with the government.
Based on the estimates of core cost by Toyo, Total as Built project cost has been arrived at by SBICAPS by adding contingency and inflation for the construction period, Interest during construction (IDC), other financing charges and Margin Money for working capital to the core cost estimates of Toyo.
Table 9: As-Built Cost of Project
| |Figures in Rs crore |
|Core cost of project |4972.59 |
|Contingency & Inflation adjustment |303.12 |
|Adjusted Cost incl. Inflation & contingency |5275.71 |
|Contribution in SEZ Corridor cost |54.00 |
|.Interest -During Construction (IDC) & Financing Charges |321.70 |
|Mar in Money |99.30 |
|Total Cost |5750.71 |

1.8 Means Of Finance
The project cost of Rs 5750.71 crore will be funded with a debt equity ratio of 65:35. Total debt required for the project is Rs 3737.96 crore. The following table gives the financing plan for the project:
Table 10: Means of Finance
|Project Cost |5750.71 |
|Debt Equity Ratio |65:35 |
|Equity |2012.75 |
|Debt |3737.96 |

1.8.1 Equity
Rs 2012.75 crore will be brought in the form of equity in the project. The promoters will bring 49% of this equity upfront while the balance equity will be raised from strategic/financial investors or IPO.
1.8.2 Debt
Rs 3737.96 crore will be brought in the form of debt in the project. Entire debt tie-up will be initially in the form of Rupee term loan. Since some part of the capex is in foreign currency, the company will have option to reduce/refinance Rupee term loan to the extent of 30% by foreign currency borrowing from ECA/ECB. Total door to door tenor of the loans would be 13 years which includes 2%2 years for construction, 1'/2 year for moratorium period and repayment period of 9 years.
The year-wise schedule of capital expenditure along with debt and equity infusion is given in the following table:
Table 11: Yearly Canex phasing and Debt/Equity drawdown
|Year |31st Mar-09 |31st` Mar-10 |31st Mar-11 |31St Mar-12 |Total |
|Percentage |4.52% |7.96% |27.83% |59.69% |100 % |
|Capex |260.18 |457.82 |1600.22 |3432.49 |5750.71 |
|Equity Infusion |260.18 |457.82 |268.25 |1026.50 |2026.42 |
|Debt Infusion |-- |-- |1331.97 |2405.99 |3737.96 |

1.9 Market
The aromatic complex will produce about 913.7 KTPA Para xylene and 283.1 KTPA Benzene. OMPL proposes to enter into long term off take agreements for PX and Benznee with parties with strong credentials. OMPL has invited Expression of Interest (EOI) for long tern offtake agreements for PX and Benzene and has received very strong response from various interested buyers like BP, Itochu, Mitsui, Mitsubishi, Marubeni, Kolmar, JBF, Indorama etc.
The company is in advanced stages of finalizing the offtaker for long-term offtake agreement for Paraxylene/BZ. The pricing of PX and Benzene will be linked to international Bench mark prices. The company proposes to give preference for offlake to those bidders who will be setting up PTA plant in MSEZ or nearby areas, assuring dedicated off take.
1.9.1 Paraxylene & Benzene: Background
Paraxylene is the most important Aromatic basic petrochemical. The demand growth for paraxylene is driven by demand growth of polyester fibre, PET bottle resin and polyester film. Para xylene is either converted into Purified Terephthalic Acid (PTA) or Dimethyl Terephthalate (DMT), both of which are intermediates in the polyester chain. Around 93% of paraxylene demand globally is into PTA.
Benzene is an important aromatic chemical and is used as a raw material in several important products such as Caprolactam which is used to make nylon filament yarn (NFY), Linear alkyl benzene (LAB) which is used in detergents, Styrene used in polystyrene & Styrene Butadiene Rubber, Nitrobenzene & chlorobenzenes which are used as dye intermediates, and BHC & Lindane which are used in pesticides.
Global Paraxylene scenario
Worldwide paraxylene demand is currently 26 million tonnes and is forecast to grow at more than 5 % per year to reach around 64 million tomes by 2025. This growth is being driven by high growth rates in polyester fibre and PET bottle resin. The Paraxylene industry is a cyclical industry, hence the capacity additions happen in cycles. The world consumption of PX is expected to grow at a higher rate of 7%/year in the 2008-2013 period, with Asia leading growth at a rate of 8.5%/year (Mainly due to China & India).
Historically, in developing economies, growth of demand for Polyester and thus PX is higher than GDP growth rate due to realization of latent demand and greater economic inclusion. To fulfill the large demand, capacity expansions are being planned in China, Middle East and India. However, despite the large capacity additions, NE Asia, particularly china is expected to remain a major importer. In the long run, NE Asia, North America, Africa, Russia will be net importers while Middle East and SE Asia will be net exporters.
Indian Paraxylene scenario
PX market in India has moved from Net importer in mid nineties to net exporter in 2000 after RIL commissioned its Jamnagar plant. Total PX capacity in the country is about 2.2 MMTPA, while demand in 2007 was around 1.6 million tonnes and is expected to keep on growing in line with GDP growth.
With the OMPL project and new capacities plans by RIL, total PX capacities are expected to reach 4.5 MMTPA by 2012. Demand for PX is expected to grow substantially driven by higher GDP growth and greater per capita spending capacity. Polyester is expected to fulfill the additional demand as the supply of the other major source of fibre i.e. cotton cannot rise at the same rate and has supply constraints. With planned capacities, India will remain a net exporter in near future and will fill the deficit in NE Asia region.
Global Benzene scenario
The global demand for benzene is currently around 40 million tonnes, with ethyl Benzene ( used for manufacture of styrene) sharing 50 % of market. Styrene is used to manufacture polystyrene and other styrenic products such as ABS and SB latex. Cumene , cyclohexane and Nitrobenzene applications for are the other major end-uses of benzene.
Global demand for benzene is expected to grow around 2.5-3 % p.a. reaching around 60 Million Tonnes by 2025. Globally, the industry trend for Benzene demand growth is correlated to GDP growth. The additional requirement for Benzene is expected to be met mostly through new capacities being setup in Asia. The growth in global trade in Benzene is expected to be more than growth in Benzene demand as a supply deficit is expected to grow in US and Europe, with deficit being fulfilled by Asian capacities.
Western Europe and N. America will continue to remain net importers of Benzene, with NE Asia turning net importer by 2010-12, while SE Asia, India, Middle East will be net exporters.
Indian Benzene scenario
Demand for benzene in the India is estimated at around 700,000 tonnes, representing almost 2% of the global market. The benzene market's largest end-use sector currently is Linear Alkyl Benzene (LAB) which is used for surfactants and detergents, representing around 30% of domestic demand. Caprolactam and Phenol account for around 21 % and 17% of the demand. The remaining demand is made from other derivatives like Aniline, BHC/Lindane, Nitrochlorobenzene. India has presently no styrene facilities.
India is currently a net exporter of Benzene, exporting a significant portion of its Benzene production, exporting almost 250 to 400 KT of benzene.
However, going forward huge demand growth is expected due to the need of setting up of Styrene plant in India to meet growing styrene products demand. Benzene demand is expected to grow at 6 % p.a. reaching over 1.5 MMTPA by 2025. The Indian Benzene demand is closely linkedwith growth of Indian economy and global trade balances.
1.10 Marketing Strategy
The company proposes to tie up long term offtake of PX and Benzene and has invited Expression of Interest from potential offtakers for Paraxylene and Benzene. The company has received strong response for Paraxylene and Benzene off take with more than 15 parties with strong credentials and financials and with global footprints like BP, Mitsui, Mitsubishi, MCC PTA, Marubeni, Itaachu, Kolmar International, Vinmar International; and domestic polyester players like Indorama, JBF etc. have shown interest in entering into long term off take agreements.
OMPL will prefer the off takers setting up plants using PX/Benzene as feedstock in MSEZ/ nearby, as this would give benefit of synergy and ensure commitment by the off taker for using the PX/Benzene produced by OMPL, while the rest of the product will be exported.
Some of the offtakers have also expressed interest in participating in the equity stake of the company to ensure better forward integration in the value chain.
Paraxylene
Three-four parties have expressed interest in setting up a dedicated PTA unit in Mangalore to met their captive PTA consumption for polyester/PET facilities, while one of the offtaker is interested in sourcing PX for its existing PTA unito wants to source PX from OMPL for marketing overseas. OMPL plans to tie up about 50 % of PX capacity domestic consumption while balance 50 % will be kept open for exporters. Indian Demand for Polyester/ PET is expected to grow significantly at a rate of 8-10% in next 5-10 years time resulting in huge demand for PX.
Based on the current global scenario, the majority of Polyester demand is expected from NE Asia, particularly China. Hence, any surplus PX left after fulfilling Indian demand can be absorbed easily by the NE Asian market. The export of product by OMPL would primarily be targeted to the market which will give the highest Net Back. OMPL is strategically better placed in Geographic terms to the competitors like Middle East due to proximity to major demand centers like India and NE Asia.
Benzene
Currently, Indian demand for Benzene is lower than the capacity, and Benzene is exported in overseas market. Going forward, the Indian export of Benzene is expected to reduce due to growth in domestic demand.
The company is in advanced stages of talks with off takers for long term agreements for sale of Benzene in overseas market. Most of the interested offtakers are looking to source Benzene from OMPL for markting overseas , primarily markets in western Europe, America, A few of the parties have also expressed interest in setting up of Phenol and other Benzene derivative units in Mangalore / nearby areas.
Presently, the company envisages 100 % export of benzena, with most export being directed to fulfill the demand in Europe (export opportunity to Europe is due to shutdown of many European Benzene producing capacities). This export opportunity is proposed to be tapped by entering into long term offtake agreement with traders having strong financials. and having international experience of marketing of petrochemicals/Benzene.
Based on the very strong response to the off take process and demand in the India and NE Asia region, the company may not face much difficulty in tying up the markeing of the entire PX and Benzene production.
The other intermediate products like LPG, Hydrogen, Raffinate, etc. will be sent back to MRPL under stream exchange agreement.
1.11 Present Status of the project
The Company has already acquired the entire land of 442 acres required for the project from Mangalore SEZ on a long term lease basis and has awarded the site development contract. Toyo Engineering India Limited has been appointed as the Project Management Consultant (PMC) for the aromatics project. PMC has already started the preliminary work on site. The progress of the project is as below: • UOP has been selected for providing process technology and the Basic Engineering & Design Package (BEDP). Major portion of BDEP package from UOP has already been received. • Long lead items have been identified and some inquiries have been floated.
1.11.1 Statutory Clearances • Environment clearance has been received. • Consent for Establishment (CFE) has been received by MSEZ. • Approval from Ministry of Commerce received for setting up SEZ unit for exemption of taxes/duties on inputs. • SIA clearance for UOP technology has been obtained
1.12 Profitability projections
The Project is expected to commence commercial operation from April 2012. Capacity utilization is assumed at 80% and 90% in the first and second year and 100% thereafter.
Feedstock for the aromatics plant will be supplied by MRPL refinery. 50% of paraxylene is assumed to be sold in the downstream plant adjacent to the aromatics complex and balance 50 % Paraxylene and 100 % benzene is assumed to be sold in the export market. LPG produced from the complex will be sold in the domestic market. Other streams of the plant like raffinate and hydrogen will be sent back to refinery to be used in the process. OMPL will enter into a "Feedstock Supply and Stream Exchange Agreement" with MRPL for dedicated supply of feedstock and off take of products like Raffinate and Hydrogen. The pricing of feedstock are based upon three year average price. Prices of Straight Run Naphtha will be benchmarked to naphtha prices in international market, FCC Naphtha will be based on average of MS and Naphtha prices, while Coker naphtha will be supplied by MRPL at a discount, A7/A9 streams will be based upon MS prices while Mixed xylene will be supplied at market price less discount being given by MRPL in the market currently.
The prices of PX and Benzene are taken at 3 years average price of Asian Contract Price (ACP) FOB Korea. For domestic sale, it is assumed as FOB Korea plus freight; while for export, price assumed at FOB Korea minus freight from India to Korea.
Natural gas will be used as fuel for CPP and utility boilers as well as process heating Opex has been taken based upon the inputs provided by Toyo/UOP.
The profitability projection for the first ten years of operation is given in the following table:
Table 12: Projected Profit & Loss statement
|Financial |2013 |2014 |
|Year Ending | | |
|1 |Project IRR |18.00% |
|2 |Equity IRR |22.90 % |
|3 |Average DSCR |2.04 |
|4 |Minimum DSCR |1.64 |

1.13 Sensitivity Analysis
The profitability parameters of the Company might change with the deviation in crack between naphtha and paraxylene/benzene. Any significant increase in the project cost will also have a negative impact on the project returns. Sensitivities have been carried out for key parameters to see their effect on the profitability and project returns as below:
Scenario I: Higher Project Cost by 10%
Though contingency and inflation has been taken for determining the total project cost over the years, however considering the long period for development of the project, the possibility of increase in project cost cannot be ruled out. The increase in the project cost will have adverse impact on the project IRR.
Scenario II: Higher Operating Expenditure by 10%
In the profitability projections, the operating expenditure has been estimated based upon various costs associated with aromatics plants as per inputs from Toyo/UOP/OMPL. An inflation rate of 3% p.a. has been applied on all the components of operating cost. Sensitivity has been carried out with 10% increase in the operating cost every year.
Scenario III: Low Capacity Utilization (90%)
Sensitivity has been carried out to check the effect of lower capacity utilization on the financial parameters. In this case, it is assumed that the plant operates at 80 % in first year of operations and 90% onwards.
Scenario IV: Lower Margins (Crack lower by .USD 50/Ton)
Considering the volatility in the crack between naphtha and paraxylene/ benzene, a sensitivity has been carried out with lower crack of USD 50/Ton by reducing Benchmark prices of paraxylene and benzene by USD 50/ton in the first three years of operation, while feedstock prices have been kept at the same level. The impact of lower margins is the most in the initial years due to high debt service obligations. The project is sensitive to lower margin.
Scenario V: Natural Gas availability from third year
In the profitability projections, it has been assumed that natural gas will be available to the aromatics complex from April 2012. Since the pipelines up to Mangalore are still in the planning stage, it may take some time to implement these large infrastructure projects. Due to this delay, the gas may not be available to the plant in the initial years. A sensitivity has been carried out with natural gas availability from third year onwards. Due to consumption of costly fuels in CPP as well as process heating in the initial years, the profitability of the project will get affected.
Results of these sensitive scenarios are given in the following table:
Table 14 : Result of Sensitivity Analysis
| | |Base Case |Sensitivity Scenarios |
|S. No. |Parameters | |Case I |Case II |Case III |Case IV |Case V |
|1 |Project IRR |18.00% |16.39% |17.16% |16.37% |16.37% |17.19% |
|2 |Equity IRR |22.90% |20.08% |21.44% |20.20% |19.68% |21.24% |
|3 |Average DSCR |2.04 |1.85 |1.94 |1.83 |1.91 |1.98 |
|4 |Minimum DSCR |1.64 |1.49 |1.57 |1.44 |1.23 |1.48 |

It is evident from the sensitivity results that, the profitability parameters are comfortable for the sensitivities related to project cost, operating cost and lower capacity utilization.
The debt servicing capability of the project is not hampered even in the rough scenario of the crack remaining lower by USD 50/MT in the first three of operation. The project IRR is greater than 12% in all scenarios.
1.14 Fiscal & Non-Fiscal Concessions
The project is located in SEZ. The project will get benefits of • Exemption from customs duty, excise duty, VAT, • service tax etc. during construction period • Exemption from income tax during first five years after COD, and exemption for 50 % in the subsequent 5 years.. The exemption for 50 % income Tax can be extended for additional 5 years if spent on redevelopment • No VAT, Excise, Customs will be applicable on sourcing of raw material for domestic sales /export of products. • Raw material would be exempted from custom duty • Sale in Domestic Tariff Area (DTA) will attract customs duty
To retain status of SEZ unit, the project will have to be net positive foreign income earner. As PX and Benzene are proposed to be exported or sold to SEZ units (deemed export), while Naphtha will be sourced domestically from MRPL. Thus the project will easily meet the foreign income earning requirement for retaining SEZ status. Further, the company has approached Karnataka state Govt. for exemption from Works Contract Tax.
1.15 Conclusion
ONGC/MRPL proposes to set up an Aromatic complex at Special Economic Zone at Mangalore, adjacent to MRPL refinery to produce about 913 KTPA Paraxylene and 283 KTPA Benzene, using Naphtha as the feedstock. The project would be implemented through a separate special purpose vehicle (SPV) company, ONGC Mangalore Petrochemicals Limited (OMPL) The project would enjoy the various tax benefits available under the SEZ policy. The project has the benefit of synergy with MRPL, for which the project is like forward integration in the value chain.
SBICAP has examined the financial feasibility of the proposed project and assessed the viability of the project under the impact of various adverse scenarios, which seek to present the results in case of changes in various assumptions.
On an assessment of the project parameters, it is recommended that OMPL should: • Enter into long term feed stock supply and stream exchange arrangements with MRPL; • Tie up off take of products through long term contracts, preferably through dedicated PTA plant at Mangalore for 50% of the capacity. • Tie-up the balance 51% of the project equity, keeping in view the synergies brought in by the investor in technology and marketing of finished products; • Finalize arrangements with MSEZ for Land Lease agreement and facilities to be provided by it; • Identify core project implementation team and make arrangements for co ordination of the project implementation in such a manner that the project is completed within the time frame envisaged; • Obtain necessary statutory clearances
Thus, based on the financial appraisal exercise, it may be concluded that, considering the projected performance of the proposed project, the company is expected to meet its debt service obligations towards the project. The overall financial, liquidity and profitability parameters of the project are considered reasonable and satisfactory.
Subject to the risk factors, the weaknesses and threats enumerated and the impact of various scenarios envisaged under sensitivity analysis, OMPL's proposed project can be considered financially viable.
Annexure-
1.16 Assumptions for Profitability Projections
1.16.1 Project Timelines
|Commercial Operation Date |01 April 2012 |
|Financial year for first year Operation |31 Mar 2013 |
|Project Life |20 Years |

1.16.2 Macroeconomic Assumption
|Factor |Per annum |
|Indian Inflation Rate |3% |
|Foreign Inflation Rate |0% |
|INR/USD Depreciation Rate |1% |
|Base INR-USD Exchange Rate (as on 1st April, 2009) |48.50 |

1.16.3 Capital Structure
|Debt |65% |
|Debt Equity Ratio |65.35 |
|Percentage Equity by Promos |49% |
|Upfront Equity (out of total equity) |49% |

1.16.4 Capacity Utilization
|Year of operation |Capacity Utilization |
|1st Year |80% |
|2nd Year |90% |
|3rd Year & beyond |100% |

1.16.5 Product Capacity an Material Balance
|S. No |Material |Quantity (TMTPA) |% of Total |
|Feedstock |
|1 |FCC naphtha |-121.0 |7.85% |
|2 |Coker naphtha |181.0 |11.74% |
|3 |St Run naphtha |513.3 |33.29% |
|4 |Heavy naphtha side draw |123.7 |8.02% |
|5 |A7 - rich stream |231.0 |14.98% |
|6 |A8 - mixed xylene |247.0 |16.02% |
|7 |A9 - rich stream |125.0 |8.11% |
|8 |Light Reformate |0.0 |0.00% |
|Total |1542.0 |100.00% |
|Products | | | |
|1 |Paraxylene |913.7 |59.25% |
|2 |Benzene |283.1 |18.36% |
|3 |Paraffin Rich Raffinate |120.8 |7.83% |
|4 |Fuel gas |173.8 |11.27% |
|5 |LPG |20.0 |1.30% |
|6 |Heavy Aromatics |11.2 |0.73% |
|7 |Hydrogen |19.4 |1.26% |
|Total |1542.0 |100.00% |

1.16.6 Feedstock Pricing Assumptions
Feedstock pricing is based the 3-year average of monthly average prices (April 2005 - Mar 2008) for different items.
|Feedstock |Benchmark |Price (Rs./MT) |Basis of Pricing |
|FCC naphtha |MS |26479.06 |Trade Parity Pricing |
|Coker naphtha |Naphtha |24256.89 |(FOB Mangalore) – Rs.923/MT |
|St Run naphtha |Naphtha |25179.89 |(FOB Mangalore) |
|Heavy naphtha side draw |Naphtha |25179.89 |(FOB Mangalore) |
|A7 - rich stream |MS |27778.23 |Trade Parity Pricing |
|A8 - mixed xylene |MX |32448.96 |FOB Korea - US$ 90/MT |
|A9 - rich stream |MS |27778.23 |Trade Parity Pricing |
|Light Reformate |MS |27778.23 |Trade Parity Pricing |

1.16.7 Product Pricing Assumptions
Product pricing is based on the 3-year monthly average prices (April 2005 - Mar 2008) for different products as below:
|Feedstock |Benchmark |Price (Rs./MT) |Basis of Pricing |
|Paraxylene |P |45708.06 |CFR ACP + Freight |
|(domestic)* | | |(Korea to |
| | | |Mangalore) |
|Paraxylene |PX |41928.06 |CFR ACP - Freight |
|(export) | | |(Korea to |
| | | |Mangalore) |
|Benzene |BZ |39392.82 | |
|(Domestic) | | | |
|Benzene (export) |BZ |38447.82 |FOB Korea |
|Paraffin Rich |Naphtha |25179.89 |(FOB Mangalore) |
|Raffinate | | | |
|(Domestic) | | | |
|LPG |LPG |24915.16 |FOB Arab Gulf + |
| | | |Freight ( AG to |
| | | |Mangalore) |
|Hydrogen |Light Naphtha |75539.67 |Three times value |
|(Domestic) | | |of light naphtha |

50% paraxylene to be sol domestic market from 2nd year onwards.
1.16.8 Financing Assumptions
|Rupee Term Loan |100% |
|Interest Rate (Rupee Term Loan) |11.0% |
|Moratorium Period |6 quarters after COD |
|Repayment Period |9 years (36 equal quarterly |
| |payments) |
|Interest rate for WC borrowing |11% |

1.1.6.9 Working Capital Assumptions
|Item |Norm |
|Inventory | |
|Feedstock |3 days consumption |
|CPP/process Fuel |3 days consumption |
|Work-in-process |3 days of cost of production |
|Finished Goods |12 days of production |
|Chemicals & consumables |15 days of cost |
|Receivables | |
|Domestic |21 days of sales |
|Export |21 days of sales |
|Creditors |21 days purchase (feedstock and CPP fuel) |

1.16.10 Operating Costs
Variable Costs
The basis of computation of ch variable cost item is indicated below:
|Item |Description |
|Catalysts & |As indicated by OMPL/Toyo. The same have been |
|Chemicals |assumed to be escalated at 3% p.a. |
|Raw water |Rs.12.5 per cum for fresh water and Rs.17.5 per |
| |cm for treated water (Requirement of 164 cm/hr |
| |of fresh water, 340 cm/hr of treated water) |
|Power & Steam |Project will require 51 MW of power and 167.5 |
| |TPH of Steam at 100% capacity utilization. |
| |The CPP shall use gas as the primary fuel, and |
| |gas has been assumed to be available from first |
| |year of operation. The price of natural gas has |
| |been assumed at 7 $/mmbtu. |
|Port Handling |Rs.70 per tonne for export of PX and Benzene is |
| |payable to New Mangalore port trust per the |
| |published tariff of NMPT |

Fixed Costs
The basis of computation of fixed costs is as follows:
|Item |Description |
|Repairs and Maintenance |0.5% on Plant & Machinery and Buildings in the first five |
| |years of operation and 1 %thereafter |
|Salary & Wages |Rs.27.0 crore based upon 300 people with Rs.9.0 lacs pa. |
|Insurance |0.25% of Plant & Machinery and Buildings |
|Administrative Expenses |0.50% of Net sales of the company |
|Electricity Charges |Rs.25 lakh per month |
|(Fixed) | |
|Land Lease charges |Rs.50,000 per acre per year |

Number of operating hours h been assumed as 8000 hours/ year
Operating Costs are escalate annually at 3% p.a.
1.16.11 Depreciation Assumptions
|Item |Maximum Depreciation |Depreciation Rate|
|SLM-Book Depreciation | | |
|Plant & Machinery |95% |5.28% |
|Misc. Assets |95% |5.28% |
|Building |95% |1.67% |
|WDV-Tax Depreciation | | |
|Plant & Machinery |100% |15% |
|Misc. Assets |100% |15% |
| |` | |
|Building |100% |10% |

1.16.12 Tax assumptions
|Tax |100% exemption on export/deemed export |
|Holiday |income for first five years and 50% |
| |exemption thereafter in next five years. |
| | |
|MAT rate |11.33% (MAT not applicable to OMPL) |
|Income |33.99% |
|Tax rate | |

1.17 Projected Financials
1.17.1 Projected P&L
| | | | | | | | | | |In Rs crore |
|Financial Year-Ending |2013 |2014 |2015 |2016 |2017 |2018 |2019 |2020 |2021 |2022 |
|Throughput (KTPA) |1234 |1388 |1542 |1542 |1542 |1542 |1542 |1542 |1542 |1542 |
|Total Income |5,428.48 |6,420.20 |7,276.84 |7,423.34 |7,572.41 |7,724.48 |7,879.65 |8,038.28 |8,199.71 |8,364.39 |
|Feedstock Expense |4,152.68 |4,765.14 |5,400.45 |5,508.71 |5.618.84 |1,993.30 |2,033.87 |2,075.28 |2,117.46 |2,160.50 |
|Fixed operating |104.24 |111.52 |118.18 |121.38 |124.65 |159.17 |163.56 |168.09 |172.74 |177.51 |
|cost | | | | | | | | | | |
| | | | | | | | | | | |
|Variable operating cost |349.42 |406.96 |446.53 |462.74 |459.49 |475.73 |478.93 |503.24 |506.03 |510.13 |
|Total operating cost |453.67 |518.47 |564.71 |584.12 |584.14 |634.90 |642.49 |671.33 |678.77 |687.65 |
|PBDIT |822.14 |1,136.58 |1,311.69 |1,330.51 |1,369.43 |1,358.40 |1,391.37 |1,403.95 |1,438.70 |1,472.85 |
|Interest on LT loan |411.18 |405.47 |365.49 |319.80 |274.12 |228.43 |182.74 |137.06 |91.37 |45.69 |
|Interest on WC borrowings |12.02 |26.46 |30.96 |33.42 |34.12 |34.89 |35.70 |36.50 |37.31 |38.05 |
|Total Financing Expenses |423.19 |431.92 |396.45 |353.23 |308.24 |263.32 |218.44 |173.56 |128.68 |83.74 |
|Depreciation |263.49 |263.49 |263.49 |263.49 |263.49 |263.49 |263.49 |263.49 |263.49 |263.49 |
|PBT |135.46 |441.17 |651.74 |713.80 |797.70 |831.59 |909.44 |966.90 |1,046.53 |1125.62 |
|Current Tax |- |- |1.98 |15.47 |20.13 |139.92 |163.65 |182.21 |203.70 |224.09 |
|Deferred Tax |4.24 |13.41 |17.83 |6.21 |4.10 |14.04 |4.72 |(3.21) |(9.96) |(15.71) |
|PAT |131.21 |427.76 |631.94 |692.11 |773.47 |677.63 |741.07 |787.90 |852.79 |917.24 |