In what could be termed as a reversal of trends - this time the borrower is not ready to accept funds from the lender. According to officials from the financial institutions (FIs), Essar Oil has been sanctioned Rs 1,154 crore for completion of its 10 million tonne refinery project at Vadinar (Gujarat).

However, the company wants to start work on the project only after renegotiating the interest rates on the loans which currently carry an average interest rate of around 19 per cent.

FIs have also said that the company is yet to bring in a part of the equity. FI sources contend that, although the promoters have agreed to bring in the required amount to restart the project, the cash has not flowed into the company. An Essar Oil spokesperson, however, said that the equity has been arranged for and would brought when the project starts.

"The refinery project has achieved full financial closure. The necessary equity has been fully tied-up by the promoters along with ABB, whose contribution is Rs 395 crores," said an Essar Oil official.

Further, the company has stated that, ABB has also provided project completion guarantee. In addition, entire debt has been tied-up with the financial institutions. However, the company is in negotiation with FIs on certain terms and conditions of the sanction which is expected to be resolved soon.

Essar Oil officials have refuted the claim of FIs that promoters have not chipped in their part of the project cost. The spokesperson reiterated that the promoters have brought in the entire contribution of Rs 600 crore towards equity at the time of the public issue. He added that, "Earlier gap in the equity was due to Foreign Currency Convertible Bonds (FCCB), which was to be raised in the international market." The company official reasoned that the FCCBs could not be raised due to the sanction imposed on India subsequent to nuclear blast.

This gap has since been tied up fully with ABB. There was no shortfall in the funds to be brought-in by the promoters, he said. FI officials said they are considering lowering of interest rates but, the project has to be completed first on a priority basis and other aspect can be negotiated during the course of the project completion.

Essar Oil officials said that the company will face stiff competition from other established players in the markets. "We need to have a competitive cost structure," the officials adds.

The total equity for Essar Oil's 10.5 million tonne project is to the tune of Rs 2,148 crore. The debt component of Rs 5,852 crore, of the Rs 8,000 crore project has already been sanctioned by the FIs. In addition to this, EOL has also secured a fulll project completion guarantee from ABB Lummus which has agreed to bring in a maximum of Rs 905 crore as part of a completion guarantee, if required.

The company has also tied up for Additional Loss of Property insurance claim estimated to be around Rs 300 crore. EOL received sanction letters from all FIs approving Rs 1,154 crore, as part of the debt component.