IOCL Paradip refinery biggest gainer of tax sops among new refineries

Sales tax deferment to the IOCL project by Odisha would block Rs 2,000 crore revenue for 11 years

Paradip oil refinery of Indian Oil Corporation (IOCL) is by far the biggest gainer of state-sponsored financial incentives, among all the newly constructed oil refineries enjoying tax sops given by the respective states of their location.

According to a study done by the Odisha government, which is revisiting tax sops to Paradip oil refinery, the sales tax deferment to the IOCL project by Odisha would block Rs 2,000 crore revenue from the sale of refinery's products for 11 years from the date of project's commissioning in 2016.

These are huge compared to incentives provided by other states to some of the recently constructed public sector and joint sector companies' refineries.

Sources said, the six million tonnes per annum (MTPA) capacity refinery of Bharat Oman Refineries (BORL), a joint venture (JV) of Bharat Petroleum Corporation (BPCL) and Oman Oil Company S.A.O.C. of Oman, at Bina in Madhya Pradesh (MP), which went on stream in 2009, gets tax concession of only Rs 250 crore a year from the MP government.

Similarly, the refinery project of HPCL-Mittal Energy (HMEL), a JV of Hindustan Petroleum Corporation (HPCL) and Mittal Energy Investments, Singapore, at Bhatinda in Punjab is entitled to financial sops to the tune of Rs 350 crore per annum from the state government.

Even the Rajasthan government has recently renegotiated a memorandum of understanding (MoU) with HPCL for a 9 MTPA oil refinery at Barmer, which has significantly reduced the annual viability gap funding (VGF) burden of the state to Rs 1,123 crore for 15 years instead of Rs 3,736 crore as decided earlier — saving Rs 40,000 crore for Rajasthan.

"Against this backdrop, the incentives given by Odisha to the Paradip oil refinery of IOCL appears huge," said a state government official. He said, when the tax concessions were granted to the company in 2004 for building the refinery at Paradip, the petroleum sector was in recession and there were worries about the viability of the project. "But now with the market for petroleum products looking up and deregulation of petrol and diesel prices, there is no need for such huge financial benefits to the project from the state government, which is facing acute pressure on revenue collection front."

In February 2017, it may be noted that the Odisha government has withdrawn tax incentives given to the Rs 34,555-crore Paradip refinery. On the question of legal tenability of withdrawing concessions earlier agreed upon, the official said, there were many instances of revisiting earlier agreements. In the oil sector, the Gujarat government has withdrawn financial incentives granted to Essar's refinery, which has been upheld by the Supreme Court.

Meanwhile, following an appeal by IOCL against the state government's decision to withdraw fiscal sops to the Paradip project, the Odisha high court has asked the parties to go back to a negotiation table and thrash out a solution to the issue. Following the court order, several rounds of talks have taken place between IOCL and state government officials. Though IOCL has shown willingness to give up a part of the concessions, a definite solution is yet to be reached.