New Delhi, Jan. 20: Financial institutions face the prospect of seeing their non-performing assets (NPAs) balloon by Rs 5,400 crore with the finance ministry dawdling on the clearance for the petroleum ministry’s proposal to allow Oil and Natural Gas Corporation (ONGC) to acquire a 51 per cent stake in Mangalore Refineries and Petrochemicals Ltd (MRPL).
The piquant situation has arisen because the finance ministry demanded a fresh appraisal of the petroleum ministry’s proposal to allow ONGC to pick up a 51 per cent stake in MRPL.
The Aditya Birla group and Hindustan Petroleum Corporation, the two joint owners of MRPL, had agreed to ONGC taking up a 51 per cent stake with an investment of Rs 660 crore. Under this agreement, ONGC would acquire the entire 37.5 per cent stake owned by the A V Birla group and infuse fresh equity to raise its stake to 51 per cent, which will give it management control of the company.
Sources said the petroleum ministry had cleared the plan and prepared a note for Cabinet approval before the finance ministry intervened.
The ONGC deal with the Birlas was struck four months ago but its consummation is now mired in red tape. Meanwhile, the company faces the spectre of complete erosion of the net worth by March 31 this year.
Once this happens, MRPL will have to be referred to the Bureau of Industrial and Financial Reconstruction (BIFR) under the Sick Industrial Companies (Special Provisions) Act and loans to the tune of Rs 5,400 crore taken from banks and financial institutions will have to be declared as NPAs.
MRPL is a state-of-the-art refinery set up with Japanese expertise. It was the first joint-sector success story and its physical performance is world-class.
However, red tape in the petroleum ministry in the past prevented it from getting timely payments from the oil pool account as a result of which it had to take recourse to borrowings. Its second phase of expansion from 3.6 million tonnes to 9.6 million tonnes a year was also undertaken through fresh loans. The debt to equity ratio has now shot up to a formidable 15.4:1.
With cash-rich ONGC moving into the picture, the financial institutions see a change in the scenario and are willing to restructure the debt. They have accepted a four-year moratorium on the payment of the principal amount and lowered the interest rate on loans from 13.5 per cent to 9.2 per cent. This will make the company financially viable.
Upstream major ONGC, which is entering the downstream refining and marketing segment, sees a golden opportunity in acquiring assets which have a replacement cost of Rs 8,000 crore.
“It is a win-win situation for all. But only if the finance ministry stops playing spoilsport,” remarked a senior petroleum ministry official.