New Delhi: State-run exploration firm Oil and Natural Gas Corp will review its refinery expansion plans in the wake of a government proposal to end a tax holiday for projects coming on stream after April 2009, its head said on Wednesday.
ONGC plans to set up two new refineries in India besides raising the capacity of its Mangalore refinery in the west coast to 300,000 barrels per day (bpd).
“I have asked my group to work out the financials (for the refinery project). We don’t want to carry on with uncertainties,” ONGC chairman R. S. Sharma told reporters.
He said the proposal would affect the Mangalore refinery’s expansion plans and raised “big question mark” on its planned new units, 300,000 bpd unit at Kakinada in the east coast, and another one in the desert state of Rajasthan.
The budget proposal, awaiting legislative approval, seeks to end a seven-year tax holiday for refineries commissioned after 1 April, 2009, and will affect all proposed new refineries except that of Reliance Petroleum Ltd.
Reliance Petroleum’s 580,000 bpd unit in western India is expected to be commissioned in the second quarter of 2008.
India aims to add 2.14 million bpd to its existing 2.98 million bpd nameplate capacity by 2012 as it seeks to become a global refining hub.
Among the refineries, which would be hit by the proposed change, are those of Indian Oil Corp, Bharat Petroleum Corp, Essar Oil and the one planned by steel magnate Lakshmi Mittal in a tie-up with state-run Hindustan Petroleum Corp.
While HPCL-Mittal’s 180,000 bpd Bhatinda refinery would come on stream in 2010, BPCL’s 120,000 bpd Bina plant in central India will be completed by Dec 2009.
Officials at IOC and BPCL said they had written to the ministry of petroleum for restoration of benefits.
“It is not good for refineries particularly Bhatinda and Bina which are going to come up a year or so after the tax incentive ends. Both have assumed the tax incentives or concessions in their financial viability,” said Amrit Pandurangi, executive director at PricewaterHouseCoopers.
He said this would slow down the pace of refinery expansion in the country. “In general the government is giving a signal that it doesn’t want more refinery capacity to be set up on the basis of tax incentives.”
Sharma said the proposed law if applied to exploration activities will reduce rate of return from the projects, but hoped the tax benefits would be restored for future projects.
“Memorandum note cannot have effect of changing the law. Whatever agreements have been signed can not be diluted. They are sacrosanct,” he said, referring to the contract for blocks that have already been awarded.
“This seems to be an inadvertent aberration and should be corrected before the finance bill is passed,” he said.