Govt refinery plans may delay production at Cairn's

In a sudden volte-face, the government is veering around the idea of setting up a Rs 8,000 crore refinery in Rajasthan to process crude oil found in the state, a proposition that may result in a three-year delay in starting production and huge revenue loss to the exchequer.

Cairn India, which made the nation's biggest oil find in more than two decades, was set to produce 7.5 million tons from early-2009. But the petroleum ministry now wants output cut to half and ONGC/MRPL - the official buyers of the crude - to build a 4 million tons a year refinery, a top official said.

 Even though the refinery will take a minimum of four years to build, the ministry has withheld approval to build a pipeline to take the crude to refiners in Gujarat, he said. The ministry has asked oil regulator DGH to look at prolonging the 150,000 barrels per day output for 8 years to at least 15 years by reducing it to 80,000

barrels per day.

Interestingly, ONGC/MRPL, which had originally mooted the idea of setting up a 7.5 million tons refinery in the state, had backed off citing the project uneconomical. A similar capacity project in Kakinada in Andhra Pradesh is also being upgraded to 15 million tons to make it economically viable.

 Besides, slashing output would result in a decline in government's share in revenues from the field to Rs 3,903 crore (Rs 39.03bn) from Rs 6,880 crore (Rs 68.80bn). Corporate tax will dwindle to Rs 1,054 crore (Rs 10.54bn) from Rs 1,913 crore (Rs 19.13bn) and royalty will dip to Rs 1,316 crore (Rs 13.16bn) from Rs 2,372 crore (Rs 23.72bn) previously estimated.

The official said a refinery cannot be viable unless the state government gives a host of fiscal incentives, including free of cost land and VAT, sales tax and entry tax exemption.