ONGC may set up 4.5-6 MT refinery in Rajasthan

Oil and Natural Gas Corp (ONGC) may be asked to set up a 4.5-6 million tons refinery in Rajasthan if the state government agrees to pick up 26 per cent stake in the Rs 9,230 crore project, besides giving a slew of fiscal incentives.

A committee headed by former Oil Secretary S C Tripathi, which was asked by the Rajasthan government to go into the possibility of setting up a refinery at the site of a massive oil find by Cairn India, has suggested setting up of a 4.5-6 million tons refinery that may be raised to 9-12 million tons in future.

The project would not be viable in a country that already has surplus refining capacity without fiscal incentives, the expert group said in its report submitted this month.

Rajasthan government has been pressing for a refinery at Barmer after Cairn found 6.5 billion barrels of reserves that can produce up to 240,000 barrels per day (12 million tons a year) of oil at plateau.

ONGC is, however, not keen on the project unless the state government defers local sales tax or extends an interest-free loan of Rs 1,300 crore per year for 16 years, gives free land and water, exempts crude oil from entry tax/cess/octori and central sales tax is waived for 16 years.

SBI Caps, which also went into the viability of the project, also suggested an interest free loan of Rs 1,200 crore per year for 16 years to ONGC, the committee said.

Besides fiscal incentives, the project cannot be viable without a "bankable and legally enforceable" tie-up with retailing firms for sale of fuel produced at the refinery.

It said the fuel retailers are not willing to offtake fuel like diesel produced at the unit unless a five per cent discount in price is given to make up for loss they would have to incur on diverting products they already sell in the state.

"Government of Rajasthan can also bear the liability of 5 per cent discount on the refinery price to be given to oil marketing company for the purpose of marketing tie-up by giving equal amount of sale tax/VAT relief on year to year basis," it said. "Alternatively, this discount can be in the form of interest free loan or grant."

The Central Government should give at least 50 per cent relief in excise duty on the products for at least five years, it said.

"The Government of Rajasthan can participate with an equity of quasi-equity or preferential share support... subject to overall limit of 26 per cent of equity," it said. It can fund the equity from the Royalty it earns on crude oil produced in the state.

"ONGC may be moved to take up the responsibility of the main promoter (of the project) along with Government of Rajasthan with Indian Oil Corp (IOC) as the marketing partner," the committee added.