New Delhi: The teaming up of the state-owned gas utility GAIL and Mukesh Ambani-controlled RIL is just another example of public-private partnership model of growth. On Tuesday, Reliance Industries Limited (RIL) and GAIL (India) Limited signed a memorandum of understanding (MoU) for joint co-operation in petrochemicals and to set up a multi-billion dollar petrochemicals plant in gas-rich West Asia, Central Asia or Russia.

After signing of the MoU, GAIL Chairman UD Choubey said, "It will be a mega petrochemical plant with a capacity of 1.9-2 million tones."

According to the MoU, Opportunities for setting up petrochemical complexes outside of India in feedstock rich countries will be explored by both companies. A working group, comprised of representatives from both companies, will examine the Identified opportunities in West Asia, Russia and former Soviet Union countries. Additionally, the two companies will examine the possibilities of mutual co-operation in the domestic market. Proper site for the proposed project would be selected by the working group by March 2008. The companies will also form a special purpose vehicle (SPV) for setting up the petrochemical complexes.

Mr. Choubey said, “We may also jointly take up integrated project involving production of feedstock and then converting it into value added products.”

TOI, during the January visit of President Vladimir Putin, told that GAIL's MoU with a Russian state-owned firm would actually play out in the Russian petrochem field, with Indian entities riding piggyback on it to enter the country. A Quarter of the world's gas reserves have been controlled by Russia, which is a major supplier to Europe but does not have the facilities to realize full value of its exports by extracting petrochem-making elements in the fuel. In Central Asian countries, Kazakhstan and West Asian countries are supplying gas but are hamstrung by inadequate facilities to extract elements for making petrochemicals.

Signed by RIL Executive Director Nikhil. R. Meswani and GAIL Director (Business Development) A. K. Purwaha in the presence of GAIL Chairman and Managing Director U. D. Choubey and RIL Chairman Mukesh Ambani, the MoU envisages the two companies jointly studying opportunities in Russia, Qatar, Saudi Arabia, UAE, Algeria, Nigeria and former Soviet republics for the petrochemical complex. The two firms will in all likelihood forge an equal partnership.

The project details, cost, financing and equity will be decided once sites are selected and feasibility report commissioned. GAIL and RIL will have equal stake in the special purpose vehicles for the petrochemical project.

U. D. Choubey CMD GAIL said, “We have formed a joint working group to select sites in three countries by March. We may also jointly take up integrated projects involving production of feedstock and then converting it into value-added products."

Natural gas or naphtha is likely to be the feedstock for the plant and the two companies, if allocated a gas field in the target countries, will look at jointly developing it and converting the gas into petrochemicals. The multi-billion dollar petrochemical plants in gas-rich West Asia, Central Asia or in oil rich Russia are likely to have a capacity of 1.9-2 million tonnes.

Choubey said project details, cost, financing and equity would be decided once sites are selected and the feasibility report commissioned. "All I can tell you is that it will be a mega petrochemical plant, potentially costing billions of dollars."

The deal with Reliance is part of GAIL's strategy to expand its petrochemicals business. Petrochemicals is one of the three core areas identified by Choubey after he took over as the head of India's largest gas transmission and marketing company earlier this year. The other focus areas being gas transmission and distribution and city gas distribution.

Choubey has over the past couple of months initiated dialogues with companies in Russia, Qatar, Nigeria and Algeria for setting up of petrochemical plants. GAIL has opened dialogue with LukOil of Russia and Qatar Petroleum and these may be expanded to include Reliance Industries. Choubey said, "It is in line with our strategy to set up a petrochemical project overseas where feedstock is available,"

Reliance and GAIL already have an agreement for cooperation in the gas sector. The areas of joint cooperation identified include natural gas pipeline transmission and marketing, CBM gas opportunities, city gas distribution, maintenance services, exploration and production.