Odisha withdraws tax sops for IOC refinery

Odisha withdraws tax sops for IOC refinery

In a big jolt to Indian Oil, the Odisha government has withdrawn tax incentives given to the ₹34,555-crore Paradip refinery, making the company reconsider its plans to invest another ₹52,000 crore in the state.

Less than two months after serving the first show-cause notice, the Odisha government on February 22 wrote to its single-biggest investor saying it is withdrawing the promised 11-year deferment on payment of sales tax on Paradip refinery products sold in the state, sources said.

The withdrawal will cost Indian Oil Corporation (IOC) ₹2,000 crore this year and will progressively increase every year as more petrol and diesel as also petrochemicals are sold within the state.

Viability threat

The sources said that besides leading to levy of sales tax on 2 million tonnes of petrol and diesel sold in the state annually, the withdrawal is threatening viability of investments in downstream petrochemical plants as products from it will be consumed by an array of synthetic fibre and plastic industries and now tax will also be levied on them. When asked, IOC Director (Refineries) Sanjiv Singh said he would not like to discuss merits of the State government’s decision in the media.

“IOC had invested about ₹50,000 crore in Paradip refinery on the Odisha coast and in associated projects. We had plans for more investment, especially in downstream petrochemical projects and refinery expansion, considering the incentives given by the state.

“But in the present scenario, future investment options will require to be reassessed,” he said.

Refiners may start BS VI fuel sale ahead of deadline

Oil ministry, state-owned refiners have agreed to start marketing BS VI grade fuel from September 2019, at least six months prior to the government deadline of 1 April 2020

Oil refineries have less time than earlier expected for shifting to BS VI grade fuel.

The oil ministry and state-owned refiners have agreed to start marketing BS VI grade fuel from September 2019, at least six months prior to the government deadline of 1 April 2020, as it takes months to clear out existing fuel with higher sulphur content from the entire supply chain up to the farthest filling station in the country, an official involved in the discussions said on condition of anonymity.

The idea is to make sure the higher grade fuel aimed at reducing emissions doesn’t miss the original 1 April 2020 deadline anywhere in the country, while auto makers are making changes to engine designs to suit the new fuel quality requirement.

Companies agreed to supplying BS VI grade fuel ahead of the deadline as the fuel that remains in the storage tanks starting from the ones at refineries to the underground storage at petrol pumps and in transportation pipelines gets mixed with the superior quality fuel, resulting in a fuel that has sulphur content somewhere in between. It takes months to eliminate the older fuel entirely from the system, with every top-up bringing down its presence by a fraction, explained the official.

Indian Oil Corp. Ltd, the largest refiner, said it is making huge investments in making the transition in fuel quality. “In BS VI, sulphur content will come down to 10 parts per million (ppm) or less. This should be seen in the context that around year 2000, we were marketing diesel with 1% sulphur content, equivalent to 10,000 ppm. This is a significant upgradation in quality in 20 years. The auto industry is working in parallel to make sure vehicles are also in line with the BS VI requirement,” said chairman B. Ashok.

Oil minister Dharmendra Pradhan had said in January, 2016 while announcing the migration of BS IV directly to BS VI, that state-owned refineries will be investing Rs28,750 crore for the transition. For shifting to BS VI norms, which will cover the entire country by April 2017, refiners had spent about Rs35,000 crore, according to data with the oil ministry.

According to Gaurav Karnik, partner, EY, the auto industry is clear about BS VI compliance and are working towards meeting the 1 April 2020 deadline. Some car and two-wheeler makers with access to the high end technology may adopt it earlier. “One of the key challenges for the industry is to meet higher costs of the advanced technology,” said Karnik.


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