India's Union Budget has proposed to end the seven-year income-tax holiday for refineries that start operations after April 2009. Withdrawal of tax holiday to new refineries that has been announced in the Budget, has got state refiner IndianOil Corporation worried. The move will reduce profitability of IOC's new refinery being planned at Paradip in Orissa. Rate of return on the estimated investment of Rs 24,000 crore in the 15 mln tpa refinery and petrochemicals plant will get reduced by 1.5-2%. Withdrawal of tax breaks may cost the company up to Rs 5,000 crores.
The proposal will affect all new refineries except that of Reliance Petroleum Ltd., which expects to commission a 580,000 bpd export-oriented unit in Jamnagar by Q3 of the new fiscal. Plans of Oil and Natural Gas Corporation's new 300,000 bpd refinery at Kakinada in Andhra Pradesh and doubling of Mangalore refinery capacity to 600,000 bpd will also be affected by the Budget. ONGC is already reviewing the plans.
In a move that will make it a global refining hub, India plans to add 2.14 mln bpd to its existing 2.98 mln bpd capacity by 2012. At such a juncture, tax incentives are crucial for the survival of the units. The removal of tax holidays for oil refineries would impact new units planned by IOC, Bharat Petroleum, Essar Oil and one planned by Lakshmi Mittal in a tie-up with Hindustan Petroleum.
HPCL-Mittal's 180,000 bpd Bhatinda refinery is planned to come on stream in 2010, Bharat Petroleum's 120,000 bpd Bina plant by December 2009, Essar Oil's plans to more than treble its Vadinar refinery capacity to 680,000 bpd by the end of 2010.