Removing IOC Paradip refinery's tax concessions to hit biz sentiment: CII

Links decision to project's delay by 6 yrs, change in refinery's size to 15 mt/year against 9 mt

The Odisha government's decision to take back tax concessions to Indian Oil Corporation's (IOC) Rs 34,555-crore Paradip refinery will impact investor sentiment adversely, industry body Confederation of Indian Industry (CII) has told the state chief minister.

Less than two months after serving the first show-cause notice, the state government on February 22 wrote to the company, saying it is withdrawing the promised 11-year deferment on payment of sales tax on Paradip refinery products sold in the state.

"I am writing to bring the matter to your kind attention and to highlight the fact that investor perception is very important to attract investments. Many policies to attract investments have incentives, which if not honoured at a later date affect investor sentiment adversely," CII President Naushad Forbes wrote to Chief Minister Naveen Patnaik.

The Odisha government has linked its withdrawal to two issues — the project was delayed by six years and the size of the refinery has been changed to 15 million tonnes a year from the previously agreed 9 mt.

IOC contests both, saying it had way back in 2006 it informed the state government in writing the decision of constructing a larger refinery together with a petrochemical plant.

"The state government should have withdrawn the concessions in 2009, by which the refinery was originally to be commissioned. The size of the refinery should not matter as VAT deferment is limited to 2 mt of products sold in the state," it added.

Hoping that an amicable solution will be reached, Forbes said all the states are working towards attracting investments through dedicated investment summits.

Odisha held its summit in December and shortly thereafter it issued notices to IOC, withdrawing the concessions.

Forbes wrote the letter on March 28.

Odisha in 2004 had given IOC a set of eight tax incentives. While the value added tax (VAT) exemption was to kick in when the refinery started commercial production, it allowed others, including construction time incentives, to be availed between 2009 and 2015. IOC had taken a benefit of Rs 550 crore on these counts.

The withdrawal of VAT exemption will cost Rs 2,000 crore to IOC this year and will progressively increase every year as more petrol and diesel, as well as petrochemicals, are sold in the state.

Odisha had originally offered the tax incentives to IOC and its then-partner Kuwait Petroleum Corporation (KPC) in December 1998 to invest in setting up a refinery in the state. These investments were withdrawn in February 2000, leading to the company shelving the project.

It restored the incentives and signed a MoU with IOC on February 16, 2004, to provide a set of eight concessions.

The state government withdrew the tax incentives in "public interest", citing 6-year delay in commissioning of the project that was larger in capacity than originally planned.

IOC, however, is quick to point out that the February 16, 2004, MoU clearly allowed change in design, capacity and configuration of the project.