Mumbai, Jan. 21
THE new refinery being set up by Reliance Industries in the Jamnagar Special Economic Zone (SEZ) could end up `exporting' bulk of its output in India (domestic tariff area), once it turns a positive net foreign exchange earner.
The 30-million-tonne a year refinery that is coming up close to the existing one has to turn a positive net foreign exchange earner within three years as per SEZ rules.
According to a source close to the company, this is just an enabling option and the refinery would sell wherever it gets the best price for its products. In a future scenario where the refinery can source crude from within the country, the company would not need to earn any foreign exchange, but it can still enjoy all SEZ benefits, he said. It is known that RIL is engaged in exploration and production both in India and abroad in a big way.
On the other hand, the Jamnagar Expansion Refinery Project (JERP) has been timed in such a manner to bridge the emerging deficit in the international market, he said.
The global refining industry is expected to undergo demand-supply mismatch on account of lack of capacity addition, with companies in the US and Europe unlikely to install grassroot refineries in the face of stringent laws and public opposition.
Also, with the gap between light and heavy crude as also that of diesel and fuel oil widening, JERP is being built with the operational flexibility to turn these differentials to the company's advantage, it is learnt.
Reliance Industries is at present exploring value engineering options such as integration of petrochemical units within JERP that would use refinery products such as propylene and benzene as building block for petrochemicals.
The new refinery, when implemented fully, would be a second refinery-cum-petrochemical complex standing next to the existing Jamnagar refinery-cum-petrochemical complex, the source said.
JERP, by virtue of being located in the SEZ and availing the offered tax sops, will just about break even with the capex cost of the existing 33 million tonne a year refinery at around $5 billion. The cost of setting up the new refinery by March 2008 has been kept at $5.7 billion (around Rs 25,600 crore). The SEZ unit status will allow Reliance Industries to set up the refinery at a cost that is some 40 per cent cheaper than a refinery in a domestic tariff area. The fiscal benefits in SEZ include customs and excise duty exemption on purchase of all capital goods, raw materials and spares; a 100 per cent income-tax umbrella for five years; 50 per cent tax exemption for two years and tax waiver for 50 per cent of profits ploughed back for the next three years.
It can also raise ECBs to the tune of $500 million without any restriction on maturity.
Also, associate company Reliance Projects and Engineering Associates Pvt Ltd will reap similar tax sops on account of being the developer of the SEZ.
Meanwhile, as much as 50 per cent of front-end engineering design at JERP is complete and construction at the site would soon begin.
Bechtel of the US is the EPC management contractor and Universal Oil Products, also of the US, is the managing technical licensor.
Among technology providers are Exxon Mobil and Foster Wheeler.