IOC adopts turnkey model to set up Paradeep refinery
New Delhi   17-Feb-2011

In a bid to stem further delays, IndianOil (IOC) will implement the Rs 29,777 crore Orissa refinery on lump sum turnkey contract basis.

IOC decided to adopt LSTK (lump sum turnkey) model after reviews brought to limelight that the project is behind schedule, Basavaraj Ningappa Bankapur, director (refineries) of the Maharatna, told Financial Chronicle.

Now, the LSTK contracts have 10 per cent price discount clause if the work is not completed on time, the director added. The phase-I production from 15 million tonne per annum (mtpa) refinery is expected to commence in March 2012. The refinery operations are expected to stabilise by next yearend.

IOC has offered LSTK contracts for some critical installations such as crude distillation unit, naphtha hydro-treater, LPG treatment plant, continuous catalytic reforming unit and few offsite utility pipelines.

These contracts were offered at 25-30 per cent less than the expected cost, said Bankapur, adding that companies such as Punj Lloyd, Essar Projects (India) and Kazakhstan’s KazStroyService (KSS) have bagged some of these contracts.

In LSTK mechanism, the contractor is responsible for engineering designs, procurement of equipment and implementing the project. On the contrary, under traditional method the work is completed in three different steps and takes a longer time. First, a consultant will come up with engineering design and requirements. In the second step, equipments will be procured and at last the project will be implemented. All these three steps will have to be cleared by company’s board individually and tenders are offered separately at all stages.

A panel headed by IOC director-refineries reviews the progress of project every month. Chief executive of the contractor company assists the director. IOC board of directors further approves the review report and also addresses concerns, if any.

The company has already spent Rs 4,500 crore till November 2010 for the project. In December 2010, IOC secured a bullet term loan of Rs 2,300 crore for setting up of refinery in Paradeep. Earlier, IOC has secured a term loan of Rs 14,900 crore for meeting expenses to set up the new refinery unit. This loan has been arranged with a consortium of 21 banks and other financial institutions.