Budget to hurt IndianOil Paradip plan
New Delhi   11-Mar-2008
<b>Withdrawal of tax holiday for new refineries may cost company Rs 5,000 Cr</b> Flagship refiner-marketer IndianOil Corporation is worried over the withdrawal of tax holiday to new refineries announced in the Budget, a move that will reduce the profitability of its new refinery being planned at Paradip in Orissa with an estimated investment of Rs 24,000 crore. "The rate of return on capital invested in the 15 million tonnes a year refinery and petrochemicals plant will go down by 1.5-2%... we are working on revised financials," Chairman Sarthak Behuria said. According to the company's director (finance) S V Narasimhan, the end of tax breaks may cost up to Rs 5,000 crore to the company. The Budget has proposed to end the seven-year income-tax holiday for refineries that start operations after April 2009. The proposal would affect all new refineries except that of Reliance Petroleum Ltd, a subsidiary of Reliance Industries Ltd, which expects to commission a 580,000 bpd (barrels per day) export-oriented unit in Jamnagar by the third quarter of the new fiscal. IndianOil is the second state-owned oil firm to say the Budget move will hurt its plan. Earlier, Oil and Natural Gas Corporation chairman R S Sharma had said that it would affect his company's plans for a new 300,000 bpd refinery at Kakinada in Andhra Pradesh and doubling of Mangalore refinery capacity to 600,000 bpd. The flagship explorer is already reviewing the plans. Behuria said he expected investment proposal for the Paradip refinery to be cleared by June and the unit to be commissioned sometime in 2011-12. "We are making a representation to the finance minister. When there is an intent to make India a refining hub, why are we robbing it of tax incentives that are crucial for the survival of the units." India plans to add 2.14 million bpd to its existing 2.98 million bpd capacity by 2012 to become a global refining hub. The removal of tax holidays for oil refineries would impact new units planned by IndianOil, Bharat Petroleum, Essar Oil and the one by steel baron Lakshmi Mittal in a tie-up with Hindustan Petroleum. HPCL-Mittal's 180,000 bpd Bhatinda refinery would come on stream in 2010, Bharat Petroleum's 120,000 bpd Bina plant would be completed by December 2009. Mittal along with Total of France was also looking at the possibility of setting up an export-oriented 300,000 bpd refinery at Vizag. Essar Oil, the second refiner in the private sector after Reliance, has announced plans to more than treble its Vadinar refinery capacity to 680,000 bpd by the end of 2010 from existing 210,000 bpd. KPMG's Manish Kumar said, "New refineries may get impacted which intend to serve domestic market Tax incentives help manage fluctuations. Currently; we are in the era of high margins but once they are lower, the incentives or lack of them may impact their profitability"