IOC, Nagarjuna miss tax holiday cut-off

The last week of March saw a series of new refining capacity going on stream. HPCL-Mittal Energy, Essar Oil and Mangalore Refinery & Petrochemicals (MRPL) were able to announce completion of capacity additions a couple of days before the seven-year tax holiday in this regard came to an end, on March 31.

However, Indian Oil’s Paradip refinery and Nagarjuna’s Cuddalore refinery, both incomplete, missed the bus. The loss to IOC is around Rs 330 crore per annum while the impact on Nagarjuna is Rs 150 crore per annum for a seven-year period.

Much earlier, to promote investment in petroleum refining, the Union government had announced a seven-year tax holiday for any new or expansion projects completed by March 31, 2012. The petroleum ministry had sought a two-year extension to this but the finance ministry declined.

MRPL expanded its annual refining capacity from 11.82 million tonnes to 15 mt. HPCL-Mittal Energy commissioned its new nine-mt refinery at Bhatinda (Punjab). Essar Oil announced expansion of its Vadinar refinery capacity from 10.5 mt to 18 mt (to go to 20 mt later this year).

All these raised yearly total oil refining capacity in the country to 213.066 mt from 193.386 mt. This will further increase to 236.066 mt by mid-2013. The tax holiday benefit was also availed by Bharat Petroleum, which last year commissioned a six-mt refinery at Bina (Madhya Pradesh). The refinery capacity expansion at a time when yearly domestic consumption of petro products is growing at only three to four per cent will press companies to look for more export.

P K Goyal, director (finance) at Indian Oil said the lack of tax holiday benefit will pull down the Paradip refining margins by $0.6 per barrel of crude oil. This works out to an annual impact of Rs 328 crore. An official at Nagarjuna Oil said the annual hit for the firm will be close to Rs 150 crore per annum. Paradip a new project, was behind schedule because of problems related to law and order and land acquisition. This delayed the project commissioning to September 2013, from the previous schedule of the first quarter of 2012. Similarly, Nagarjuna Oil’s new six-mt capacity refinery at Cuddalore in Tamil Nadu also missed its scheduled completion date of 2011-end.