Chennai, June 2: A sub-committee, comprising two officials each of Spic and MRL, has been constituted to work out the details of reappraisal and cost re-estimation of the beleaguered Arochem project.

The original estimate, worked out in 1989, had pegged the cost of the project around Rs 800 crore while another one in 1994 had hiked it to Rs 2,250 crore. Taking into consideration time and cost overruns, the new estimate could well run past the Rs 3,500-crore mark.

The decision to constitute such a `working group on reappraisal' was arrived at the recent meeting of the promoters of National Aromatics and Petrochemicals Corporation Ltd (Arochem) - Spic and Madras Refineries Ltd.

It was also reliably learnt by The Financial Express that the two-man committee, constituted by the promoters during their first meeting in early April, has submitted its report.

The promoters meetings are being held following an observation of the First Bench of the Madras High Court that Arochem promoters should discuss and attempt to sort out the throny issues affecting the implementation of the project.

The committee, comprising of MRL director (technical) MP Srinivasan and Spic managing director PR Sundaravadivelu, is said to have given a broad methodology for reappraising the Arochem project.

Now, the working group would chalk out the finer elements to be adopted during the reappraisal. The group's report, expected to be presented in another two months, would also recommend an organisation to carry out the actual reappraisal, cost re-estimation. This sub-committee would function under the two-man committee.

Meanwhile, MRL has outrightly rejected Spic's proposal for integrating Spic Petrochemicals Ltd (SPC) and Spic Aromatics and Chemicals Corporation Ltd (SACL) with Arochem. The proposal, submitted by Spic to the first bench of the Madras high court in the first week of this month, never came up for discussion during the recent promoters meeting.

In its proposal, Spic had agreed to integrate SPC and SACL with Arochem subject to various conditions. Inter-alia, the proposal sought abeyance of the CBI enquiry into the alleged irregularities noticed in the transfer of Arochem land to the extent of 168.38 acres to SPC and SACL.

MRL sources charged Spic of lackadaisical attitude towards its integration proposal and noted, ``if they were keen on its (proposal) implementation, it should have been presented at the promoters meeting. Moreover, the proposal itself is not in line with our affirmative implementation strategy for the Arochem project''.

However, one of Spic's conditions, relating to change in MRL's stake in Arochem if it is proved that the project cost has been inflated, seems to have been the major irritant for rejecting the proposal.

The condition said, ``if MRL conveys its willingness, but is of the opinion that project cost has been inflated, the capital contribution by MRL will be reduced proportionately to the extent indicated by IDBI in its reappraisal.''Analysts noted, ``in case the cost escalation factor is established, Spic has apparently suggested that MRL need to pump in 26 per cent of the project cost. Instead, it would be enough if MRL brings in the amount commensurate to 26 per cent of the original project cost. However, this would tantamount to a minority stake for MRL in the project, with Spic being the major equity holder.'' Spic and MRL entered into an memorandum of understanding for Arochem in January 1989, and since then the project has waded through various phases including legal tangles. Originally the project cost was pegged at around Rs 800 crore for manufacturing aromatics, PTA with an installed capacity of 1.5 lakh tonnes per annum.

In the following years, the Cabinet Committee on Economic Affairs approved the project with an estimated cost of Rs 1,750 crore and the PTA capacity was increased to 2 lt/annum. In 1994, the project was estimated at Rs 2,250 crore, including manufacture of PFY.

While there is no confirmation from either SPIC or MRL, it is understood that the cost of project, presently, would be Rs 3,500 crore. MRL's equity investment was calculated at around Rs 200 crore on a project cost of Rs 2,250 crore. The project has a debt to equity ratio of 2:1.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.