SIBUR, IOC in talks to build petchem capacity

The multi-billion dollar investment is being explored at a time when IOC is focusing on the expansion of its petrochemical business against the backdrop of a growing demand for petrochemicals in the country.

“SIBUR is in talks with IOC for investing in India for setting up petrochemicals capacity in partnership with the state-run company. It will be a large facility," said one of the two people mentioned above requesting anonymity.

Mint had earlier reported about India and Russia working on a multi-pronged approach that involves joint collaboration in petrochemicals, energy sourcing and supplies, and upstream investments in Russia and India.

“The Russian energy majors are of the view that India is a market and will remain a market for a long while," said the first person quoted above.

“It is at a very crucial stage," said the second person mentioned above, who also did not want to be named.

India’s petrochemicals manufacturing space has a major player in Mukesh Ambani-controlled Reliance Industries Ltd (RIL). Adani Enterprises Ltd also recently incorporated Adani Petrochemicals Ltd as a wholly-owned subsidiary, marking the Gautam Adani-controlled firm’s entry into the sector.

Queries emailed to the spokespersons of IOC and SIBUR late on Tuesday night remained unanswered till press time.

Last month, IOC had signed a pact with the Gujarat government for setting up a petrochemical and lube integration project and acrylics and oxo alcohol project at its refinery in Vadodara.

India wants to leverage its position as a key refining hub in Asia to boost its petrochemical capacity. India, which has an installed capacity of more than 249.36 million tonnes per annum (mtpa) with 23 refineries, plans to increase its refining capacity to 400 mtpa by 2025.

SIBUR reported $7.2 billion revenue in 2020 and has a presence in India through its subsidiary SIBUR Petrochemical India, which is building a butyl rubber facility in Jamnagar in a joint venture with RIL.

Leonid Mikhelson, chairman of Russian gas firm OAO Novatek, is the largest stakeholder in SIBUR, followed by Gennady Timchenko, a known ally of Russian President Vladimir Putin. The other shareholders in the Moscow-headquartered firm are current and former SIBUR employees, insurance firm Sogaz JSC, China’s state-owned investment fund The Silk Road Fund and oil & gas major Sinopec.

The demand for petrochemicals in India will remain robust, analysts said.

There has been “healthy growth in demand for several petrochemicals in Q4 FY2021", according to ratings agency ICRA. “Margins have also improved for most products in Q4 FY2021. After an exceptionally strong FY2021, FY2022 is also expected to remain healthy, though marginally weaker than FY2021 on growth and profitability."

“The demand for several petrochemicals such as polyethylene and polypropylene increased sharply in Q4 FY2021, whereas demand for others was stable," ICRA said in a report.

India has been leaning on its old energy partner Russia as part of the strategy of diversifying its energy basket with crude oil supplies from non-Organization of the Petroleum Exporting Countries (Opec) sources. India had signed the first term contract for crude oil sourcing from Russia in February 2020, with IOC and Russian firm Rosneft inking a deal for 2 million metric tonnes of Urals grade crude.

“Petroleum refining and marketing with much higher petrochemicals integration will continue to be IOC’s key focus area. We are going to add 25 million tonnes of refining capacity by 2023-24," IOC chairman Shrikant Madhav Vaidya had said recently.

IOC recently announced a net profit of ₹5,941 crore for the June quarter, compared with ₹1,911 crore a year earlier. India’s largest fuel retailer posted a jump in revenue in the first quarter to ₹1.55 trillion, compared to ₹88,939 crore in the corresponding quarter last year because of higher inventory gains and improved petrochemical margins.

“IOC’s Gujarat refinery is now poised to grow to 18 mtpa capacity. New units for the production of polypropylene, butyl acrylate and lube oil base stocks will also be added to its portfolio," Vaidya had said.

According to Crisil Research, India has a petrochemicals manufacturing capacity of 14 mtpa and recorded a domestic market size of 15 million tonnes in FY20.