RIL's adavancement

RIL advances on roping in US partner for new project

Reliance Industries advanced 2.55% to Rs 1374.20, on reaching an agreement with US-based Rohm and Haas Company for the joint construction of an acrylic-monomer complex.The counter clocked 5.06 lakh shares on BSE. It had also surged to a high of Rs 1420 in opening trade.

Index heavyweight Reliance Industries (RIL) has a huge 11.34% weightage in the 30-member Sensex club, second only to IT bellwether Infosys Technologies, which had 12% weightage on 21 March 2007. The weights assigned to individuals are in terms of market capitalisation, which, in turn, changes on the basis of daily changes in share prices.

This proposed facility will have the capacity to make approximately 200,000 tonnes of acrylic acid and its esters annually. While the key objective would be to serve the domestic market, the complex could also export acrylic acid and derivatives.

Materials from the facility are intended to serve as building blocks for environmentally advanced products for paints and coatings, packaging adhesives, detergents, textile and construction materials. The new facility is expected to spur development of super absorbent polymers, used primarily in the manufacture of baby diapers.

The proposed acrylic acid plant is expected to be world-scale, and will be located at a site with world-class infrastructure using Rohm and Haas' technology.

Meanwhile, RIL has asked the government to convert its existing refinery at Jamnagar into an export-oriented unit (EoU). Reports add that the EoU status will mean RIL would not pay the 5% import duty on crude oil, resulting in lower cost of production of petrochemical feedstock naphtha.

This will entitle the company to various tax exemptions, including automatic duty-free import of crude oil. Also, RIL will be entitled to duty-free imports of equipment if RIL was to expand or upgrade the refinery.

Although details of the tax breaks are not fully known, it is estimated the conversion to EoU status would extend the tax holiday for the refinery. A seven-year tax holiday for refineries, which the Jamnagar refinery enjoyed, is set to end in 2007 and the conversion to an EoU will give them a tax holiday on export earnings for at least two more years.

In 2005-06, RIL exported 10.84 million tonnes of products for $5.50 billion to become the largest Indian exporter. It is estimated to export 17.84 million tonnes of petroleum products this fiscal for over $10.3 billion. A EoU enjoys 100% exemption on profits under Section 10B of the I-T Act.

RIL was eligible for tax breaks on its earnings under Section 80(i)B of the I-T Act, which grants 100% tax exemption to refineries for seven years once they start production. By morphing into an EoU, the refinery would get 100% tax exemption on its export earnings.

RIL will, however, have to pay the minimum alternative tax (MAT) as it has been extended to EoUs in the 2007-08 Budget. Moreover, RIL may stand to reap huge gains if the EoU scheme is extended beyond 2009. As of now, the EoU scheme is set to be phased out by 2009, which will bring to an end all such tax exemptions.

Earlier this month, Reliance Industries has made two new discoveries in the east coast blocks. These explorations are in the KG-D6-P2 in block KG DWN 98/3 (KG D6), and in the NEC 25 A5 in block NEC OSN 97/2 (NEC 25). The commercial viability of the above discoveries is currently under evaluation.

These recent discoveries demonstrate the further upside potential of the blocks in the Krishna-Godavari and Mahanadi basins.