Oil, chemicals region policy to focus on manufacturing

The draft policy on the proposed petroleum, chemicals and petrochemicals investment regions (PCPIR), which will focus on manufacturing activities, is on the verge of being finalised.

A committee, chaired by Finance Secretary Adarsh Kishore with Revenue Secretary K M Chandrasekhar among others, has discussed the financial implications, including tariffs and the incentive scheme for the regions.

The draft policy, which has a deadline of May 15, will lay out a road map on this issue, besides defining linkages with schemes that promote public-private partnerships in infrastructure.

"The committee has arrived at a set of recommendations that seek to incentivise and boost the PCPIR concept," sources told Business Standard.

The policy deals with the size of the regions. The policy definition may introduce flexibility by mentioning the total area of an investment region as 250 sq km with a processing area of about 100 sq km.

The issue of the status of land availability (and water) along with incentives proposed by various states seeking such regions would also be dealt with, sources added.

On the pricing of feedstock, it has been decided that inputs would be made available at "globally competitive" rates to the PCPIRs.

This would mean that customs duty on crude oil would be reduced to nil with no change in petroleum product tariffs to provide appropriate incentives to units for domestic market sales.

However, due to negative protection on naptha, there are tariff induced infructous trade movements. Accordingly, naptha sales to petrochemical units in such regions may be provided deemed export status.

It may be recalled that the government had constituted a task force on PCPIRs, headed by the Prime Minister's Principal Secretary TKA Nair.

"The government is keen on getting the PCPIRs up and running," sources added. That commitment is also reflected in this year's Budget speech by Finance Minister P Chidambaram.

One of the issues that the task force has discussed is the availability and pricing of feedstock. In a presentation at the second meeting of the task force, Petroleum Secretary M S Srinivasan pointed out that sufficient supplies of crude oil were available in the international market and that no constraints in availability of naptha were foreseen.

However, with deficient supply of natural gas, Srinivasan wanted new gas-based petrochemical plants to be planned only after the gas source is tied-up.