RIL withdraws NCLT application after calling off the Saudi Aramco deal

India’s Reliance Industries Ltd (RIL) has decided against hiving off its oil to chemicals (O2C) business, intended as part of a potential stake sale to Saudi Aramco, making way for fresh negotiations between the two companies.

RIL said the company will continue to be Saudi Aramco’s preferred partner for investments in the private sector in India and will collaborate with Saudi Aramco and SABIC for investments in Saudi Arabia.

In August 2019, RIL and Aramco signed a non-binding letter of intent for the latter to acquire a 20 percent stake in Reliance’s O2C business in a deal worth $15 billion. It was to be the “biggest foreign investment in Reliance history”.

The deal was expected to benefit RIL’s O2C business in terms of higher feedstock security for its tilt towards higher crude to petrochemical conversion. Reliance had applied to hive off its O2C business in line with the National Company Law Tribunal.

In October 2019, Reliance had also appointed Saudi Aramco Chairman Yasir Al-Rumayyan to its board as an independent director. However, the Covid-19 pandemic was one of the reasons significantly delaying the planned investment by Aramco. Mostly because the pandemic caused crude oil prices to crash in line with demand for petroleum products. Industry experts have noted that this likely impacted Aramco’s ability to acquire the 20 percent stake in the RIL’s O2C business.

Further, RIL’s announcement to become a net-zero carbon emitter by 2030 and plans to optimise its Jamnagar refinery to produce jet fuels and petrochemicals may have also impacted Aramco’s interest in investing in the O2C.

“RIL and Aramco have mutually determined that it would be beneficial for both parties to re-evaluate the proposed investment in O2C business in light of the changed context,” RIL said in a statement.

The company said the Jamnagar complex which is a key part of its O2C business would be the centre of Reliance’s renewable energy and new materials business, supporting its net-zero carbon emissions commitment.

These plans would be counterintuitive to Aramco’s interests and worldview. Oil-producing countries have been making the case that fossil fuel assets need to be given more time and investment so that the energy transition can be gradual.

Jamnagar is set to become the site for RIL’s “Green Energy Giga Complex” which is set to include an integrated solar photovoltaic module factory, an advanced energy storage factory, an electrolyser factory, and a fuel cell factory.

Moreover, Aramco also may have had concerns that a large part of its investment could be used to repay loans to RIL, which the company may use to fund its green energy-related projects. Post the reorganization of the O2C business, the new entity would have had a $25 billion loan from RIL on its balance sheet according to an investor presentation by RIL.

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