MUMBAI: Mukesh Ambani-controlled Reliance Industries Ltd (RIL) has entered into an agreement for partnering in petrochemicals and crude refining businesses with the Republic of Tatarstan, part of the Russian Federation, three persons familiar with the development said.
The tie-up could lead to RIL investing in a petrochemical facility or a crude oil refinery, or even both, in Tatarstan.
The agreement was signed on 22 March, when a delegation from Tatarstan —led by its President Rustam Minnikhanov—visited the oil-to-yarn and retail conglomerate’s integrated oil refining and petrochemical complex in Jamnagar, Gujarat.
The deputy chief of Tatarstan president’s press office and two RIL officials, who did not want to be identified, confirmed the visit.
All three of them stated that the matter was at a nascent stage and details of the partnership will evolve over time. As part of the agreement, a joint working group will be set up with executives from both sides to discuss the latest technologies and challenges facing the petrochemicals and refining sectors.
“There were talks about the creation of a working group that would discuss challenges in refining and petrochemicals,” Khairullin Eduard Faridovich, deputy chief of the Tatarstan president’s press office, said over the phone from Kazan, the capital of Tatarstan. “It will be very useful for us to learn new technologies and there will be a lot of cooperation in the future with a big company like Reliance.”
Tatarstan is one of Russia’s most economically developed regions, located 797km from Moscow on the eastern frontier of the country. Its main wealth is crude oil and gas from the casing head of an oil well.
According to its website, it has oil reserves of more than a billion tonnes and produces around 32 million tonnes (mt), or 6.5% of Russia’s annual oil output. Besides crude refining, the Russian province is into manufacturing petrochemicals such as synthetic rubber, tyres and polyethylene.
An article dated 2 April in Russia and India Report, a web magazine produced by Rossiyskaya Gazeta—described as the Russian government’s paper of record—stated that in February 2011, the oil refining arm of Tatarstan’s government-owned corporation, TAIF group of companies, had contracted US-based engineering and construction firm KBR Inc. to develop a veba-combi cracker (VCC)—a technology to utilize the impure residue from crude refining to yield high-grade petroleum products, including feedstock for petrochemicals.
The Tatarstan government “decided to simultaneously develop collaboration with Indian counterparts for using the technology successfully”, the report said. “The Indian plant (RIL’sJamnagarunit) had also purchased VCC processing technology and is currently developing it.”
RIL’s Jamnagar refinery is one of the most complex of its kind in the world, which allows it to process heavier—hence, cheaper—varieties of crude to yield high-quality finished products, giving it a cost advantage.
“Things are at an early stage and we need to assess several aspects like the demand and prices of petroleum and petrochemical products and the kind of incentives the (Tatarstan) government will offer if we invest, before taking a call,” one of the RIL officials said.
Faridovich said RIL may be interested in investing in Tatarstan since the government there would “create the best environment possible” for such an investment.
Arvind Mahajan, head of the energy and natural resources practice at international audit and consulting firm KPMG, said the joint working group could have been formed to assess RIL’s feasibility of investing in Tatarstan, and it might go ahead with its plan if there was a strong business case.
“Along with the opportunities it can create in the downstream sectors, RIL may also look at upstream opportunities, where most of the value creation opportunity lies,” Mahajan said. “If it gets access to feedstock, it may look at value-added petrochemicals.”
“The key question here is what will be the scope of this petrochemical collaboration, and if it (the facility in Tatarstan) will be gas-fired?Russiahas a lot of gas and it has been looking at various ways to exploit and commercialize it. If RIL gets access to cheap gas, then that would be a big deal for them,” said a Mumbai-based senior analyst with a foreign brokerage who did not want to be named.
He said RIL had previously explored the idea of getting into gas-fired petrochemicals, but that didn’t go far. “If this agreement gets them there, in terms of cheap gas for a gas-fired naphtha cracker plant or some such facility, then it could be a huge strategic investment for them.”
The Mukesh Ambani-promoted oil-to-retail conglomerate has been engaging increasingly with Russian firms to bolster its downstream petrochemical business. On 21 February, RIL sealed a 75:25 joint venture with Sibur, Russia and Eastern Europe’s largest petrochemical firm, to set up India’s first butyl rubber facility by the second half of fiscal 2014 at an investment of $450 million.
Sector analysts have repeatedly pointed to the cash pile RIL has been sitting on for a while now and a pressing need for the firm to deploy it in new businesses or avenues. As of 31 December 2011, RIL had cash and cash equivalents of Rs.74,539 crore.