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Bathinda Refinery
Punjab to reconsider fiscal incentives
Jangveer Singh
Tribune News Service

Chandigarh, June 12
The state government has decided to have a fresh look at fiscal incentives being offered to Hindustan Petroleum Corporation Limited (HPCL)-Mittal Energy Limited’s (HMEL) Rs 18,919-crore Bathinda refinery project following submission of three specific options by the latter. HMEL has sought increased incentives to ensure viability of the refinery vis-a-vis other upcoming facilities across the nation.

Steel baron Lakhmi N Mittal, who has an equal 49 per cent stake in the venture along with HPCL, had earlier raised the issue of with Prime Minister Manmohan Singh saying the inland refinery project needed more fiscal incentives from Punjab to make it viable.

According to the present deed of assurance, Punjab is to provide interest-free loan of Rs 250 crore per year for five years in lieu of sales tax deferment. The amount is to be repaid in five years starting from the sixth year of commercial production.

However, last week HMEL officials had meetings with top government functionaries, the Industries Minister and the Chief Minister. Following detailed discussions with the Chief Secretary, HMEL has submitted a proposal to enhance incentives from the existing interest free loan to a level not less than Rs 2,500 crore of net present value.

“We are having a fresh look at the matter following the demand by HMEL,” Industries Minister Manoranjan Kalia said, adding that since the deed of assurance was signed at the PMO-level and had been frozen, it was to be seen how it could be reopened.

According to the proposal, HMEL has requested for a one-time grant of Rs 2,500 crore from the state government with the stipulation that repayment will commence after the first year of operations (2011-12).

The second option is that the state gives a Rs 1,000-crore grant per year for three years with repayment commencing only after three years i.e. 2011-12.

The third option calls for a Rs 600-crore interest free loan for three years starting from 2011 and a Rs 400-crore interest free loan for the next 12 years starting 2014-15. HPCL officials have proposed that the joint company repay this loan in 30 half-yearly instalments commencing from the 16th year and ending at the 30th year of operations.

According to sources, HMEL has in meetings with state officials expressed the sentiment that it is committed to completing the project by March 2011.

The company has, however, claimed that it would be difficult to make the refinery viable in the present economic scenario with other states, notifying grants equal to 100 per cent of the fixed capital investments. This, company sources said, could result in a situation where oil from outside the state could be cheaper than that produced by HMEL. It would incur additional costs in producing Euro V complaint oil at the rate of 9 million tonnes per annum, they added.