Odisha counters IOCL claim, says Paradeep refinery can be most profitable

The deadlock between the Odisha government and Indian Oil Corporation Ltd (IOCL) over the award of fiscal incentives has turned bitter. Both IOCL and the state government have locked horns after the government withdrew deferment of value added tax (VAT) awarded to the refinery project to ensure its viability. IOCL has contested the decision of the state government in the Orissa High Court.

While the oil marketing company has been clamouring that the refinery will not be viable without the VAT deferment, the state government has sung a different tune.

"IOCL's Paradeep refinery project is very much viable. Also, being a shore-based project, it has the potential to emerge as the most profitable oil refinery project of the company. The company claims the Paradeep refinery was not viable without the VAT concession but they expanded its capacity from nine to 15 million tonne per annum (mtpa), violating the conditions in the memorandum of understanding (MoU). Now, IOCL is contemplating to step up capacity to 20 mtpa. The company's intent shows the project does not need any fiscal incentive to run", said a senior Odisha government official.

The state government has engaged Xavier Institute of Management, Bhubaneswar to analyze the commercial viability of IOCL's Paradeep refinery. The institute is researching on it and from some reports submitted by them, it is amply clear that the refinery has been operating at almost full capacity and generating good cash flows, the official stated.

Sanjiv Singh, director (refineries) at IOCL could not be contacted for comments.

IOCL had signed a MoU with the Odisha government in February 2004 for setting up a crude oil refinery at Paradeep. The initial capacity of the refinery was pegged at nine mtpa and based on this capacity, IOCL had asked for deferred payment of VAT to make the project viable. But when, IOCL proposed to raise capacity to 15 mtpa, the state government felt the refinery could be viable and decided to cancel the incentive. Also, the state government complained that the MoU bound project was to be commissioned within 60 months. Instead, the project got delayed by six years.

An expert committee appointed by the state government on revenue enhancement had projected that the cumulative impact on the collection of VAT from petroleum products after commissioning of Indian Oil Corporation Ltd's (IOCL) refinery at Paradeep during 2013-24 may be of the order of Rs 50195.89 crore.

The committee observed that this will create a big dent in the state's resources, especially because the massive expansion of the capacity of IOCL could also displace other retailers of petrol goods who pay taxes.

Last fiscal, the state government lost Rs 2280 crore due to VAT deferment in IOCL's favour. The government rescinded the notification for VAT deferment in February 2017 and served a notice on the oil company for payment of pending VAT amounting to Rs 1485 crore. IOCL contested the notice of the government in the Odisha High Court which has kept in abeyance the demand notice and allowed a working group two months time to settle the row.

After the High Court's directive, there have been two rounds of meetings of the working group headed by the Union secretary for petroleum & natural gas. But, both meetings have turned out to be inconclusive due to lack of a consensus. The Odisha government is now mulling to pray to the High Court to grant more time to settle the row with IOCL.

The oil major has previously clarified that the spat with the Odisha government would not hurt the progress of the petrochemical complex which was planned concomitantly with the oil refinery. IOCL has invested Rs 35,000 crore on the refinery and has committed an investment of Rs 34,000 crore on the petrochemical complex. The refinery cum petrochemical complex together with the pipeline projects make IOCL the biggest investor in Odisha.