NEW DELHI, May 29: Ignoring objections raised by the Petroleum Ministry, the board of Bharat Petroleum Corporation (BPCL) has approved the proposal for setting up a Rs 7,346 crore petrochemicals complex in Tamil Nadu, the home state of Minister for Petroleum T R Baalu.

While none of the queries raised during the BPCL's board meet were answered satisfactorily, the major objection did not even find mention in the new proposal. On May 10, Ministry officials raised questions over the project's financial viability, asking BPCL to reconsider the foray following the Finance Ministry's announcement planning to lower import duty. While deferring the proposal, they had argued that the domestic petrochemicals market -- reeling under pressure of duty reductions in the 1997-98 Budget -- will not be able to stave off international competition, once duties are further reduced.

They also questioned the Corporation's ability to finance the project and sought details of whether an assured market existed, considering the gap between demand and supply as well as the fact that the Madras Refineries Limited (MRL) was considering a similar project.

The Ministry asked BPCL to furnish the foreign exchange rates and the cost of borrowing for the project before putting it up for the board's reconsideration. However, the revised proposal merely stated the queries without giving specific answers. The question on the project's viability -- in case duties are reduced did not even find a mention in the revised proposal!

The reply to the question about the impact the MRL's proposed petrochemicals project will have on the BPCL one, has been tucked away in an annexure. The annexure contains a letter from the Corporation's chairman which confirms that the MRL has indeed proposed such a plant.

While replying to the question about the cost of borrowing, the BPCL merely states that foreign exchange expenditure will be financed through foreign currency debt while 75 per cent of the working capital will be through bank borrowing.

It fails to provide the estimated cost of such a borrowing.

As for its ability to finance the project, the new proposal states that one crore rupees have been provided for in the Corporation's budget for the year 1997-98.

The board, which approved the project, also sanctioned Rs 50 crore (including foreign exchange component of Rs 6 crore) for preparing the detailed feasibility report. It may be recalled that the last time the project came up for review before the BPCL's board, it did not even sanction this limited amount since the project appeared unfeasible.

The internal rate of return from the project remains pegged at 20.68 per cent -- as in the earlier proposal -- and the demand-supply projections outlined in the previous proposal have been reiterated.

Against the project

* Financial viability following Finance Ministry's intention to lower import duties to East Asian levels

*Marketability of products in the face of competition from Madras Refineries Limited

*Projected foreign exchange rates and the cost of borrowing

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.