After successfully running the crude distillation unit yesterday, the Rs 3,868-crore grassroots refinery of Indian Oil Corporation at Panipat finally started refining crude oil.
When fully commissioned, the 6-million-tonne refinery is expected to produce every year 8 lakh tonnes of petrol, 9 lakh tonnes of jet fuel, 6 lakh tonnes of kerosene and 21 lakh tonnes of high speed diesel. In addition, the refinery will produce 2 lakh tonnes liquefied petroleum gas (LPG) for supply to industry and households.
The refinery will cater to the north-western region of the country, including Haryana, Punjab, Jammu and Kashmir, Himachal Pradesh, Delhi and Western UP.
More From This Section
The refinery, which was originally scheduled to be commissioned in July 1997, has experienced numerous delays. However, the delayed commissioning of the refinery has a silver lining. It gives the refinery the status of a new refinery in the deregulated scenario. Had it been started before April 1, it could not have availed of some of the concessions available to the new refineries.
Under the previous system, oil refineries, marketing companies and pipelines were compensated based on the retention concept, and were allowed a return of 12 per cent post-tax on the net worth. The price of indigenous crude oil was also based on cost plus formula wherein the public sector oil producers were allowed operating cost and 15 per cent post tax return on capital employed.
Under the deregulated regime from April 1, the system of retention pricing stands abolished for all existing and new refineries, and pricing of petroleum products at the refinery gate level has moved towards import parity. However, refinery gate prices of controlled products motor spirit, high speed diesel, kerosene, LPG and aviation turbine fuel is being fixed by the Oil Coordination Committee at adjusted import parity prices for the existing refineries and at tariff-adjusted import parity prices for the new refineries.
As per the governments directive, the adjusted import parity prices for the existing refineries would be 5 per cent less than the tariff-adjusted import parity prices for the new refineries. This implies that the new refineries would be getting a five per cent higher price than the existing refineries for the petroleum products produced by them.
The government is of the view that this is necessary to provide a level playing field to all refineries since, otherwise, the new refineries being set up at a higher cost cannot compete with the depreciated existing refineries. IOC is of the view that this 5 per cent would, to some extent, offset the losses incurred because of the delay in the commissioning of the refinery.
The Panipat project was approved by the government in October 1992 at a cost of Rs 3,868 crore with a completion schedule of 54 months. Of the total expenditure, about Rs 2,794 crore was allocated for construction cost , Rs 743 crore for augmenting pipeline facilities for supply of crude oil to the refinery and Rs 331 crore for developing the marketing terminal.
As per its original schedule, the refinery was to be commissioned in April 1997. However, because of problems from the venders supplying critical equipment, the completion of the project was delayed by more than ten months. However, according to official sources, there are no cost overruns in the project and it has been completed well within the budgeted amount.