Odisha may cut IndianOil’s Paradip sop

Odisha may cut IndianOil’s Paradip sop

The Odisha government has served a notice to Indian Oil Corporation, indicating it wants to withdraw fiscal incentives given to the central government-owned refiner-marketer’s Rs 34,000-crore Paradip refinery , a move that will hit profitability of the state’s largest investor and shake business confidence.

Ironically , the December 29 notice came within weeks of the state government holding `Make in Odisha’ conclave to attract investments. This has prompted industry watchers to see the development as an extension of the political fight between chief minister Naveen Patnaik and oil minister Dharmendra Pradhan, who is spearheading the BJP’s advance in the state. The showcause notice for withdrawal of concession contravenes the MoU which says conditions cannot be changed. IndianOil had anOil had shelved the project in 2003 and revived it only after the state government extended the concessions. The investment plan was approved in 2009. The withdrawal of the VAT concession will reduce by 2% the rate of return taken for working out the investment, upsetting the entire calculation and hitting future expansion.

If withdrawn, the incentive that will bite IndianOil most is an 11-year VAT deferment on products from the refinery sold within the state.Company sources said considering a 4.5% growth in sales in the state, the VAT defer ment would be worth Rs 8,000-11,000 crore as per the net present value. The refinery started commercial production last year.

The state government’s contention is that the refinery doesn’t need incentives since its profitability has increased due to a higher capacity configuration and low global oil prices. The refinery was originally planned with a capacity of processing 9 million tonne a year but then revised to 15 million tonne, keeping the state government in the loop.

IndianOil executives argued that the Paradip refinery , which started commercial production last year, is yet to achieve net profit on standalone basis. They explained the capacity revision by saying modern refineries with complex technologies have to operate at high capacity for optimum results. Besides, the higher capacity was needed for setting up two downstream petrochemical units at an additional cost of Rs 7,250 crore.


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