IOCL, Odisha govt should moderate stand to settle incentive row: Pradhan

Odisha CM Naveen Patnaik was hopeful of reaching a settlement with IOCL

Union Minister for Petroleum & Natural Gas Dharmendra Pradhan has suggested that both Indian Oil Corporation (IOCL) and the Odisha government need to soften their demands to break the deadlock over an award of fiscal incentives to the oil company's Paradip crude oil refinery.

At a meeting with Chief Minister Naveen Patnaik in New Delhi, Pradhan emphasised on the need for finding a middle path, wherein both IOCL and the state government can work out a mutually acceptable solution by climbing down from their stated positions.

Pradhan felt that though the state had extended the tax concession in 2004, there was a necessity of finding an amicable solution to the present impasse keeping in view the fiscal health of the state and commercial interest of IOCL. The minister said it was important for the state government to incentivise the expansion plans of IOCL to create petrochemical and downstream industries in the state. "Over a period of time, it will enable the state to increase its revenue and also create additional employment avenues for the youth of the state. This will lay [the] foundation of a new industrial ecosystem, facilitating industrialization and fiscal consolidation", he added.

Naveen Patnaik was hopeful of reaching a settlement with IOCL. "We discussed ways to find a solution to the IOCL problem. We hope that we will come to an amicable solution with IOCL as far as the state government is concerned," Patnaik told reporters.

During the meeting, officials of the Ministry of Petroleum & Natural Gas (PNG), Odisha government and IOCL agreed to deliberate various issues and work out an amicable solution at the earliest.

IOCL and the Odisha government are wrangling over the deferment of value-added tax (VAT) allowed to the oil major according to an agreement signed in 2004. The pact allowed VAT deferment to IOCL's Paradeep oil refinery for 11 years from the start of commercial operations to ensure the project's commercial viability. The state government contended that the VAT concession was given keeping in view the initially proposed capacity of nine million tonnes per annum (mtpa).

State government officials alleged that IOCL unilaterally went ahead to raise capacity to 15 mtpa without consulting the government. The state government felt with a rated capacity of 15 mtpa, the IOCL refinery was very much viable and hence, there was no need for VAT deferment. More, as the state's finances were under strain and VAT collection growth muted, the state government revoked the old notification that allowed IOCL the incentive, in February this year. Accordingly, the state government had issued a demand notice worth Rs 1,485 crore payable as VAT by IOCL on February 27. Peeved with the decision, the oil marketing company (OMC) challenged the state government's abrupt move in the Orissa High Court. The court gave directives to both the sparring parties to get the row resolved through the working group headed by a secretary with the Ministry of PNG.

However, several rounds of talks proved to be of no avail as both the Odisha government and IOCL refused to budge from their pole positions.