ONGC wants free land, fiscal sops to set up Kakinada project

ONGC wants free land, fiscal sops to set up Kakinada project

New Delhi: Oil and Natural Gas Corporation has put a slew of conditions, including land free of cost from Andhra Pradesh government and fiscal incentives, for setting up the Rs25,600-crore export-oriented refinery-cum-petrochemical project at Kakinada.

The state-run firm wants 950 hectares of land for the refinery free of cost, exemption from sales tax on sale of petroleum and petrochemical products, industry sources said.

Oil and Natural Gas Corp (ONGC) also wants fiscal concessions given to a Special Economic Zone. It wants Andhra Pradesh to give free power and water supply to the project, provide road and rail connectivity, develop sewage and refinery effluent disposal system and communication connectivity.

Sources said the company has justified its demands as even the enhanced capacity of the refinery to 15 million tons promised only 10.27% rate of return that would become negative in case of a 10% rise in capital cost.

ONGC’s subsidiary Mangalore Refinery is to hold 26% stake in Kakinada Refinery Petrochemicals Ltd (KRPL), the company set up to implement the refinery project. IL&FS will hold 51% stake and the balance would be with an Andhra Pradesh government-appointed agency.

Incidentally, automobile-to-banking group Hindujas have evinced interest in picking a majority stake in the refinery project. Former ONGC chairman Subir Raha, whose brain-child the project was, has since joined the Hinduja Group.

Sources said ONGC has made it clear that it would proceed with the project only after getting confirmation from the state government for the incentives it had sought.

ONGC had engaged Engineers India Ltd for techno-economic feasibility study for establishing initial plan of a 7.5 million tonne capacity export-oriented refinery while Nexant was hired for doing market demand study both for export markets as well as in hinterland domestic markets. SBI Caps’s financial appraisal of the 7.5 million tonne capacity refinery found the project economically unviable as the returns estimated were below the hurdle rate.

EIL was again engaged for carrying out a detailed feasibility report (DRF) for an augmented capacity of 15- million ton as advised by merchant banker SBI Caps.

Sources said the estimated cost of setting up a 15- million ton refinery with high complexity configuration stood at Rs25,000 crore. Besides, Rs600 crore would be needed to build a single-point mooring and the sub-sea pipeline for transportation of crude oil to the project site.

The project is to have a debt-equity ratio of 2:1 (Rs17,000 crore debt).