That '70s show

While the government relapses into its bad old habit of the 1970s, of getting public sector units to set up large projects in high-profile constituencies""the latest being a refinery in Amethi, which is the constituency of Rahul Gandhi""it is unclear as to how much this will benefit the voters there.

The employment impact of a refinery is marginal, when you consider that Mangalore Refineries produced 11-12 million tonnes of petroleum products last year with just 900 people, many of them engineers from places other than Mangalore. Much of the downstream investment that will result once a refinery is set up will probably take place outside the constituency of Amethi, leaving only basic masonry and road building to the constituency's populace.

Getting reliable power supply and improving infrastructure will have a far greater effect on the local economy, in terms of jobs and downstream benefits. This is a good case of how politically-driven investment decisions are often ineffectual politics.

If the Amethi refinery project is to take off""and it well may, given how the petroleum minister's office has sent a preliminary report on the matter to the Prime Minister's office with a request to forward it to Congress President Sonia Gandhi and her son Rahul""the state-owned Bharat Petroleum, which has been given the honour of executing the project, may have to spike its plan for a refinery at Bina in Madhya Pradesh.

That may be easier now that there's no Congress government in Madhya Pradesh, and the Congress is after all hoping to make inroads in Uttar Pradesh. But it does raise the issue of how a state-owned enterprise should be deciding where it wants to invest, instead of being told where to invest. And it raises questions about such fanciful ideas as public sector autonomy, still being espoused in a naïve state of denial by the Arjun Sengupta committee.

Then, there is the little matter of the viability of such a project. The idea of a refinery in Amethi has been toyed with before and dropped for this very reason. UP is not short of a refinery, since there is one already at Mathura.

And the fact is that, once the expansion of the existing refineries and a new one at Bhatinda in Punjab takes place, the country's refinery availability and demand will be out of whack, especially if you add on Amethi""even today, there is excess supply of around 10-15 per cent, with another 18-20 million tonnes of refining capacity in the pipeline.

Demand, on the other hand, is growing too slowly to justify more capacity. In a situation of excess capacity, exports are the way out, but this makes sense only for a coastal refinery, which is not burdened by transport costs that add up to a tidy sum.

Once the current level of import duty protection goes (effective protection to refineries is still in the region of 30-40 per cent), such cost calculations become vital and could be the difference between being making money and losing it. In short, it is best to scrap the idea.