Indian Oil Corporation’s 15-million tonne, greenfield Paradip Refinery to be commissioned at Paradip in Odisha has run into a cost overrun of Rs 650 crore, while its commissioning has been delayed by over a year to September 2013.
Slated to be commissioned in March 2012 at an estimated cost of Rs 30,000 crore, the project has been marred by a variety of factors. These include policy paralysis, lack or absence of forest and environment clearances, legal hurdles in procuring right of way for a water pipeline, labour issues and a missed deadline for the commissioning of a captive power plant by BHEL and other private equipment suppliers.
For the delay, IOC will have to forego a tax holiday that it was eligible for till March 2012. Both the oil ministry and IOC sought a two-year extension of the tax holiday but it was denied by the Ministry of Finance. According to government orders, refineries commissioned after March 31 will not be exempt from paying income tax on revenues earned in the first seven years of its operations.
The lack of tax benefits will have an adverse impact on IOC’s books. It will set the corporation back by Rs 300 crore annually–something that the company, which posted a Q1 loss of Rs 22,451 (the highest ever quarter loss by any public or private sector undertaking) on August 9, can ill afford.
“We ran into impediments beyond our control in the form of lack of environment clearance for the construction of a jetty, getting right of way for a critical pipeline through Cuttack city, and total absence of labour due to unfavourable law and order situation in that area,” a senior IOC official said requesting anonymity.
“Another factor that led to the delay in commissioning of the project was the imposition of an interim stay by Odisha High Court on all construction activities at Hadia-Pathaarea on Mahanadi river since July 2011. But now the situation has normalised and construction has started,” the official added. The project is being constructed over 3,344 acres with IOC having spent nearly Rs 15,000 crore on it.
The refinery was originally planned to export at least 2.05 million tonnes of petrol and 124,000 tonnes of naphtha out of its yearly output of 15 million tonnes. But double digit growth in petrol and diesel consumption has left very little for exports.