State-owned Indian Oil Corp (IOC) will invest about Rs 52,000 crore in expanding Paradip refinery and setting up petrochemical complex after the Odisha government agreed to restore part of tax incentives, a top source said.
The state government has agreed to give Rs 700 crore per annum of an interest-free loan for 15 years to make up for the withdrawn incentive of 11-year deferment on payment of sales tax on Paradip refinery products sold in the state.
"IOC wanted Rs 1,000 crore per annum of the interest-free loan but in the end settled for Rs 700 crore loan over a longer 15-year period," said the source who was privy to the negotiations between the company and the state government.
After the deal reached with state government on Friday, IOC will go full stream with the expansion of Paradip refinery capacity by 5 million tons a year as well as set up a polypropylene plant and a mono-ethylene glycol production facility in 4-5 years, he said.
IOC will also withdraw a legal challenge moved at the Odisha High Court against the state government's decision to withdraw signed commitment.
Odisha, which through a February 22 decision, withdrew the promised 11-year VAT or sales tax deferment, wanted the tax revenues to first come to its book and release the interest-free loan. This was found acceptable to IOC.
"The Rs 700 crore interest-free loan for 15 years is equal to the tax incentives Rajasthan has recently extended for setting up of a refinery in Barmer by HPCL. It is also similar to the tax breaks given by Punjab for Bhatinda refinery and Madhya Pradesh for the Bina unit," he said.
The source said IOC and Odisha government will sign an addendum to the original tax incentive agreement of 2004.
In the revised agreement, the viability gap funding for Paradip refinery project will be revised to Rs 700 crore per annum payable in four equal instalments in each quarter in the form of interest-free loan for 15 years starting from the financial year 2016-17.
The source said the VAT deferment was only on products sold in the state, which is about 2 million tons annually.
VAT collected and not paid in 2015-16, 2016-17 and 2017 -18 will be deposited by IOC immediately. Odisha government will provide an interest-free loan to IOC for 2016-17 and three-quarters of the current year by December 2017 or January 2018 and every quarter thereafter.
The source said the state government has also agreed to waive interest/penalty for the VAT withheld by IOC.
A joint petition will be filed in the Orissa High Court, Cuttack informing about the agreement, he said.