Odisha withdraws Paradip refinery’s tax incentives

08 March 2017, Week 09 Issue 555

Odisha State has withdrawn tax incentives for state-run Indian Oil’s 345.5 billion rupee (US$5.18 billion) Paradip refinery, which could force the NOC to reconsider any further expansion of its operations in the state.

PTI, quoting unnamed sources, said the Odisha government had withdrawn the incentives out of “public interest”, citing a six-year delay in commissioning a refinery that ended bigger than originally planned. The facility was supposed to have a processing capacity of 9 million tonnes per year (180,000 bpd), but opened at 15 million tonnes (300,000 bpd).

While Indian Oil’s director of refineries, Sanjiv Singh, avoided commenting on the decision itself, he made it clear that Indian Oil would need to reassess its investment plans for the state.

“IOC had invested about 500 billion rupees [US$7.5 billion] in Paradip refinery on the Odisha coast and in associated projects [such as pipelines and a port]. We had plans for more investment, especially in downstream petrochemical projects and refinery expansion, considering the incentives given by the state. But in the present scenario, future investment options will need to be reassessed,” he said.

Singh added that his company hoped Odisha would reconsider the decision and restore the incentives that were mutually agreed upon in 2004. “The restoration of the tax incentives will send a positive signal to prospective investors in the state. Paradip refinery has already added to the overall development of the area,” he said.

Indian Oil, the country’s biggest state refiner, had intended to expand the Paradip refinery by 5 million tonnes (100,000 bpd) and set up a polypropylene plant and mono ethylene glycol production facility at the site of the one-year old refinery. The viability of those projects is now in question, though, given that Indian Oil now stands to lose up to 20 billion rupees (US$300 million) thanks to the removal of the tax relief.

Meanwhile, in another report this week, PTI quoted an unnamed senior company official as saying Indian Oil might opt for legal recourse. “We are trying to explain to them that we came to Odisha only based on their commitment to give certain tax incentives. Now they cannot go back on them. If we don’t succeed the only option left for us will be to take it up legally,” the company official said.

The Indian Oil-Odisha episode adds yet another layer of complexity to already challenging relations between business and government, whether at state or union level.

Edited by

Andrew Kemp


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