The US Trade and Development Agency has awarded a grant to state-owned Indian Oil Corp (IOC) to support their refinery modernisation efforts.
"The programme will help IOC analyse options for optimising its refining operations to produce cleaner fuels from its by-product streams, which will help the company improve efficiencies and reduce emissions at its refineries to meet Indian environmental standards," USTDA said in a statement.
It however did not give details of the financial commitment.
The agreement was signed by IOC Director (Refineries) Sanjiv Singh and John McCaslin, Minister Counselor for Commercial Affairs at the US Embassy here.
"USTDA is excited to join efforts with IOC, an important partner, as they seek to improve operational efficiency and expand the production of cleaner fuels," said Henry Steingass, Regional Director for South and Southeast Asia at USTDA. "We believe this is a great opportunity for US Industry to continue to build on their relationship with IOC."
The feasibility study will include a market, technical, economic and financial analysis of advanced technologies in order to help IOC identify solutions for converting pet coke refinery by-products into cleaner chemical products and fuels.
This project follows IOC's participation in a USTDA reverse trade mission that brought Indian energy officials to the United States for meetings and site visits with US companies focused on refinery modernisation solutions.
IOC is India's biggest oil refiner.
The then IOC director (refineries) Jaspal Singh, according
to the sources, in 2006 had written to the state chief secretary informing IOC's decision of considering a larger capacity refinery with the petrochemical plant.
They added that the state government did not object to increase in capacity then, and neither in 2009, when IOC finally made the investment decision for just the refinery.
If the MoU was sacrosanct, the state government should have withdrawn the concessions in 2009 itself, allowing IOC to reassess its investment plans.
As per the MoU, IOC was to commission the refinery in 2009, but actually did it in November 2015 and the state government allowed IOC to avail of construction-related sops totalling Rs 550 crore all through the six years.
On December 29, 2016, the state government had served a show-cause notice on IOC, asking why the fiscal incentives should not be withdrawn, considering that the refinery was delayed by over six years.
It feels the delay has pushed back the payback time of deferred taxes by a few years and will cost it Rs 69,000 crore. But IOC disputes this figure, saying net present value of the 11-year deferment of sales tax is Rs 10,000 crore.
IOC's plans for Paradip also included projects to improve petrol and diesel quality to euro-VI standards by 2020.
Also, the Rs 3,500-crore polypropylene plant is already under construction and likely to be commissioned by September 2017.
Sources said the government in February 2004 had signed an agreement with IOC to give fiscal incentives for setting up a 9 million tonne a year oil refinery at Paradip by 2009-10.
However, the project was delayed and started only in early 2016.
Also, the government says the refinery was originally planned for 9 mt per annum capacity, but the actual size commissioned was 15 million tonnes.
The sources said IOC has replied to the notice saying the size of the refinery should not matter as VAT deferment is limited to 2 mt of products sold in the state.
On the delay in commissioning of the refinery, IOC said the government made clear its intention of withdrawing incentives in 2010 or 2011 itself to enable the firm to redraw its plans.
More importantly, even if the refinery was commissioned in 2009-10, the VAT deferment would have been in operation till 2020-21 and there is no case for it ending in 2016-17.
The company said the state government will not suffer any revenue loss as it will pay back the taxes after 11 years, albeit without interest on it.
IOC said its board had approved investments only in 2009 and withdrawal of VAT concession will reduce by 2 per cent, the rate of return it considered for working out the investment.
The government, the sources said, is of the opinion that the refinery no longer needs incentives as its profitability had increased due to higher capacity and low global oil prices.
IOC contended that the Paradip refinery is yet to achieve profitability on a standalone basis and that its investment in higher capacity and downstream petrochemical plants will only lead to higher economic activity and employment in the state.
Higher capacity was needed for setting up two petrochem units at an additional cost of Rs 7,250 crore.
Originally, the foundation stone of the Paradip refinery was laid by the then prime minister Atal Bihari Vajpayee on May 24, 2000.
