Reliance Industries Limited might start spending laboriously to enhance its chemicals business once it repays its outstanding debt worth Rs 1.54 trillion, two people aware of the discussions said. RIL aims to be debt-free firm by March 2021.
The latest capital expenditure plan in the works indicate that Mukesh Ambani, RIL chairman, would unlikely pause for long after a 7-year investment spree that culminated in Reliance Jio Infocomm Ltd rising to the top position in India’s telecom industry, breaking the established records. However, RIL failed to comment till the time of going to press.
One of the two people said, “The required Capex (Capital-expenditure) is part of RIL’s oil-to-chemicals strategy to transform the Jamnagar refinery, which would take the company from primarily being a producer of fuels to chemicals for higher margins.”
Upgrading the petrochemical facilities would help Reliance to produce higher-margin products from crude oil and prepare for a future when the demand for fuel would decline due to the popularity of electric vehicles.
According to reports, Reliance said that it planned to sell a stake of 20% to Saudi Arabian company, Aramco, in its refining and petrochemicals business for $15 billion as a part of the plan to cut down on its massive debt. The terms of the agreement state crude oil supply of 500,000 barrels per day to RIL’s twin refineries in Jamnagar from Saudi’s Aramco.
RIL’s plan to move into electric mobility
Reliance Industries Ltd developed a multi-zone catalytic cracking process that converts an extensive range of feedstock to high-value propylene and ethylene. The firm plans to discard all the refined products priced below crude for chemicals at the initial stage. Nevertheless, the final fuel configuration would see the exclusion of petrol and diesel to facilitate RIL’s plan to move into electric mobility as transport fuel demand diminishes.
44% of Reliance Industry Ltd’s operating profits were accounted for from petrochemicals in the June quarter, up by 4% from the previous year.
Gagan Dixit, an analyst at Elara Capital, said that RIL had provided a pathway of over 70% conversion of crude refined to high-value petrochemicals in phases for more than a decades. The analysts believed that the company might need to raise its petrochemical capacity by 20mt towards it. He added that if the required Capex were $800 million/tonne, similar to the recent expansion, then Capex would be Rs 1,120 billion.