IOC-Tata Power Joint Venture to Build 1,000-Megawatt Power Project for Paradip Petroleum Complex

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Researched by Industrial Info Resources (Sugar Land, Texas)--In a bid to reduce financial and operational risks, Indian Oil Corporation Limited (BOM:530965) (IOC) (Mumbai) will enter into a joint venture with Tata Power (Mumbai) to build a 1,000-megawatt (MW) power plant in Mirthapur in the state of Orissa with an investment of nearly $1 billion. Tata Power will own a majority stake of 74.26% in the project, and IOC will hold the balance.

The power plant will have an initial capacity of 500 MW, which will later be expanded to 1,000 MW. The project will supply power to IOC's upcoming 15 million-ton-per-year petrochemicals complex in Paradip. The plant will also supply power to Tata Group's proposed steel plant in Orissa and other industries near the Paradip complex. Surplus power will be sold to the national grid at a profit.

Tata Power and IOC jointly conducted a feasibility study and estimated the tariff for power supply to the Paradip complex at U.S. 6.15 cents per unit on an annual levelized basis for 25 years of operation. Another study conducted with Foster Wheeler (NASDAQ:FWLT) (Clinton, New Jersey) indicated that if IOC were to set up a captive power generation unit within the Paradip complex, the power tariff would be U.S. 12.5 cents per unit. IOC stands to gain from the joint venture by a 50% reduction in power costs. Tata Power's involvement in the project will enable IOC to gain easy access to captive coal blocks, which will further drive down costs.

The petrochemicals complex at Paradip will be developed in two phases. Phase I, which comprises the installation of the refinery and units for production of paraxylene, polypropylene and styrene, will require 300 MW of power. Phase II of the project, which includes installation of the cracker unit and downstream polymer production plants, is likely to require 600 MW of power. Subsequent capacity expansion of the refinery and cracker unit will increase the power requirements of the complex. IOC is also evaluating the feasibility of setting up a coke gasification unit to convert petroleum coke produced in the complex into syngas for extraction of further downstream derivatives. This will escalate power requirements for the Paradip complex to 1,000 MW.

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