IOC has recently commissioned its six-million tonne refinery in Panipat and has indicated in its latest annual report that it is seeking a joint venture for paraxylenes here. Experts, however, caution that this is not a particularly good idea given that prices the world over are falling. In fact, the Oil and Natural Gas Corporation nd Bharat Petroleum Corporation were planning to commission a Rs 2,600-crore paraxylenes project which may not take off now.

"Paraxylene will not work as it would call for a capacity of around 2,50,000 tonnes. The investment for this would be at least Rs 1,000 crore and this still remains uncertain territory," sources said. Whether IOC will change its mindremains to be seen as the oil PSU has indicated this and also production of acrylonitrile (ACN) at Panipat in another joint venture.

The IPCL team is believed to be of the opinion that other options could be considered like linear alkyl benzene (LAB) and rubber derivatives like butyl rubber. Polyester fibres is also another alternative and these issues would be discussed with IOC, it is learnt. Sources say that once this is done, the two parties will kick off a series of talks on capacity, financing.

If the two parties reach an agreement, they are likely to participate equally in the venture. As in the case of BPCL's and ONGC's paraxylene plan, it is also probable that a portion of the equity will be offered to the public and financial institutions. Experts also say that partnerships like these is a trend that will gain momentum in the years to come.

IPCL is primarily in the polymer business, with polymers accounting for about 70 per cent of its total turnover. Fibres and intermediates account for 14per cent of total sales, while the balance is constituted by chemicals. A report prepared by UTI Securities Research states that expansions underway and the build up in production from recent commissionings will not alter the present product mix significantly.

LAB is being considered in the petrochemicals joint venture with IOC and the report says that there is domestic overcapacity which will be "exacerbated" by Nirma's new 75,000-tonne plant. "That said, success in exports by domestic players have managed to keep domestic price reasonably steady," the report adds.

It may be recalled that IPCL also has its interest in refineries with intentions of picking a stake in IOC's east coast refinery as also BPCL's Bina project. "However, all these proposals are still at the level of theoritical interest as nothing concrete has emerged yet," sources said. The probable coming together of IOC and IPCL for the petrochemicals venture could translate into other such endeavours in the future.

Not a viableproposition

The basis of the proposed vneture is the vertical integration it will provide to IOC's new refinery in Panipat. But the problem which IOC and IPCL have to sort out is that Panipat refinery will be able to support a small petrochemical complex only. It would not be able to match the economics of scale of Reliance in polyster-fibre segment or in intermediate products.

In addition, LAB has already an overcapacity in the country and prices of polyster fibres have been moving downwards.

A better option would have be to go for larger range of polymer products and in some cases for higher capacity of existing ones. This is because, over the last two decades, IPCL has already established its expertise in these products. Going into an entirely new area may not give returns commensurate with the risk involved.