Assam gas cracker project in jeopardy

05-May-05

The Assam gas cracker project, proposed to come up at Lepetkata in Dibrugarh district, proposes to use both natural gas and naphtha as raw material. The plant is expected to have a of 1.10 lakh tons of HDPE and LDPE each, along with raw pyrolysis gas and some fuel oil. The finance ministry has held back its approval to the Rs 5,285 crore Assam gas cracker project, doubting the economic viability of the project. Rs1, 983-crore capital subsidy required for the project may not be justified as the cracker has a low employment potential. The proposal however, had been cleared by both the petroleum ministry and the department of chemicals and petrochemicals. Both departments have been asked to take a closer look at the project, jeopardizing the project once again. Gail has been asked to take into consideration all the concessions that are already available to the Northeast under the existing industrial policy package and then work out the additional sops required. The Gail proposal did not indicate the status of the environmental clearance for the project. The FTA with ASEAN is also expected to affect the project. All these factors have triggered the need for a financial analysis that takes into account the possibility of increased foreign competition due to the scaling down of import duties. Gail has been asked to look into the feasibility of the project at a lower internal rate of return of 8% instead of 12% as this would lower the amount of capital subsidy required for the project. Gail however, has expressed that the subsidy would have to be paid over a period of 5 years, making it more feasible for the government to undertake the project. In case of excise and sales tax waivers, the governments, in any case is not get these taxes, and the only direct outgo from the government coffers would be the subsidy element. Customs duty exemptions for importing equipment have also been extended in the past to set up new projects such as the Reliance refinery in Jamnagar.