Orissa to get Paradip Refinery by 2009-10

Vol 7, PW 14 (24 Sep 03) Midstream & Downstream

Persistence pays.

Orissa can tell you that from the way it has managed to convince Indian Oil to revive its shelved five-year-old 9m t/y Paradip Refinery project. Early this month, there was a final exchange of letters between oil minister Ram Naik and Orissa chief minister Naveen Patnaik confirming that the refinery will emerge.

In return, Orissa has promised IOC a host of concessions - the most important being a 11-year sales tax holiday. "All pending issues have been sorted out," a Shastri Bhawan source tells PETROWATCH.

"Paradip will come through in the second half of the 11th five year plan." On 30th July, a meeting chaired by oil secretary BK Chaturvedi and attended by senior oil, finance and Orissa government officials broke the stalemate at Paradip. At the meeting, IOC made it clear the refinery would be unviable unless Orissa restored the financial incentives it had earlier extended - and later withdrawn.

"If the incentives are not restored, the internal rate of return for the project is just 3.98% making it unviable," says IOC. "If we get a sales tax holiday for 11 years as well as other concessions originally given, the IRR becomes about 12%.

Orissa should remember that we are living in a surplus product situation and these concessions should be fully restored if the refinery is to be viable." Orissa representatives, we learn, agreed to restore the concessions provided IOC agreed to complete the refinery well before the end of the 11th five year plan period. IOC returned from the meeting and on 19th August informed the oil ministry that its board had decided to go ahead with Paradip, "despite the fact that the project IRR is much lower on account of projected product surplus in the country and consequent exports." Adds IOC: "This is subject to Orissa restoring 100% sales tax incentives originally granted to the project." IOC also wants no entry tax on crude oil for the refinery - in line with a similar concession for the Panipat Refinery expansion project - and not just a five-year entry tax holiday as proposed by Orissa.

IOC also wants a MoU with Orissa assuring that the financial concessions to Paradip are irrevocable. "We have to be sure that these concessions are not withdrawn later as happened earlier with this project." IOC says it will try its best to, "complete the project in 2009-10."