The Hindu Business Line : ‘Duty on naphtha will hit Haldia Petro bottomline’

Kolkata, March 1 The Union Budget proposal for re-imposition of five per cent import duty on naphtha for petrochemical production seems to have found its single largest casualty in West Bengal government-promoted Haldia Petrochemicals Ltd (HPL).

HPL is reportedly the only major standalone petrochemical facility using naphtha as feedstock.

The showpiece industrial project of the State Government estimates a Rs 300-crore hit on bottomline – almost half of its projected profit in 2007-08 – as a result of the Budget proposals. The new duty structure will be effected in 2008-09. HPL posted a profit of Rs 5,854 crore on a turnover of Rs 8,300 crore in 2006-07.

According to sources, Reliance’s 8-lakh tonne cracker facility Hazira, which uses some imported naphtha, may also be impacted but only marginally as the company is fully integrated and may always use naphtha produced at Jamnagar as feedstock. The rest three petrochemical facilities of the energy major are gas based.

The Pata petrochemical facility of GAIL uses gas a feedstock and is also out of the purview of this proposal. The upcoming cracker facility of IOC at Panipat will be integrated to the company’s refinery at Panipat.

HPL’s woes

Interestingly, HPL claims that imposition of import duty will not only impact the price of imported naphtha but also the feedstock procured domestically.

HPL currently procures 20 per cent of its total intake of 1.7 million tonne naphtha from the neighbourhood Haldia refinery of its own stakeholder-in-the-waiting IndianOil. The residual amount is either imported or procured from other domestic sources.

“We procure domestically for ensuring quantities or for logistics considerations without any cost advantage whatsoever, as domestic producers charge landed price of naphtha inclusive of transportation, port handling charges and others. Accordingly the Budget proposal, if implemented, will increase the procurement cost by a clear five per cent,” Mr Swapan Bhowmick, Managing Director of HPL, said.

Considering that the customs duty on polymer remained unchanged at five per cent, HPL products will face further price competition in the domestic market.

“What is more important, as per the Free Trade Agreement with Singapore the polymer imports from that country may soon enjoy a duty advantage compared to naphtha,” he said.

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