MP to float bonds to compensate Bina refinery tax incentives

The cash-starved Madhya Pradesh government will float bonds to mop up funds to compensate Bina refinery tax incentives. The Rs 10,000-crore refinery, which is being constructed at Agasod (in Sagar district) is likely to start production this year and will reclaim its value added tax (VAT) as per agreement signed few years back.

The state government, which had earlier planned to make budgetary provisions of Rs 250 crore in its annual budget, has now decided to float bonds.

“We are working on modalities of bonds which are to be floated by MP Trade and Facilitation Corporation. We will offer them the reimbursement of VAT in form of soft loan (interest-free loan),” a well-placed official in department of industry said.

The state government in 2004 had decided to offer tax incentives to the company with an upper limit of Rs 250 crore per annum for 15 years. A joint venture between Bharat Petroleum Corporation Limited (BPLC) and Oman Oil Company, BORL refinery, which was scheduled to be constructed by March this year, reportedly is now likely to be completed by June this year.

“A government organisation like TRIFAC can float statutory liquidity ratio (SLR) bonds, it would be difficult for banks to purchase state government securities, if government does not provide guarantee,” an expert said. Earlier in an MPSEB case state government did not hounour guarantee to the securities and faced litigation.

Further the state government is also considering to reimburse the work contract tax for the refinery for various construction works. “The tax is likely to be reimbursed for the year 2010-2011 too. This year it is likely to be Rs 35 crore,” the official said.

MP TRIFAC is a newly created organisation parallel to ailing MP State Industries Development Corporation, which is facing imminent closure.

With its 6 million tonne capacity the company will produce LPG, Euro-III and Euro-IV motor spirit, high speed diesel, aviation turbine fuel, sulphur and coke.