Pratim Ranjan Bose

Kolkata, June 10

AFTER almost a decade since it was planned, Hindustan Petroleum Corporation Ltd (HPCL) is set to finalise its plans on setting up the 9-million-tonne Guru Gobind Singh Oil Refinery at Bhatinda in Punjab.

The company's plans had hit a roadblock during the last two years ever since the present State Government reversed the decision taken by the previous regime on tax concessions.

Though it was agreed in February this year that the proposed refinery would be given incentives "in a mutually acceptable form", the project had been kept on hold as a Deed of Assurance (DoA) from the State Government was awaited.

According to sources, HPCL has now arrived at a consensus with the Punjab Government on the concessions. Though the details are not known, they said that with this development the final hurdle before the project was removed. The company is expected to enter into an agreement with the State Government on commissioning of the project "shortly".

Expected to be commissioned in four years, the project may undergo cost escalation from its initial 1998 estimate of about Rs 9,806 crore.

The first letter of intent for the Bhatinda refinery was issued in April 1996. The project was initially designed to involve strategic collaboration with international players. Accordingly, the foreign investment promotion board (FIPB) had also given the necessary approvals in 1996.

Despite showing initial interest, two international majors Saudi Aramco and Exxon finally questioned the viability of the proposed refinery and decided against participating in the project. The viability of the project was then questioned, leading to inordinate delay.

During all these years, HPCL devised different financing proposals requiring substantial equity participation by the financial institutions, the Punjab Government and the general public. However, none of these proposals materialised.

With the return of the Congress Party to power in Punjab, the project ran into rough weather. The new State Government declared that the tax concessions offered by the previous Akali Dal Government as unbearable for the State economy. In view of the fact that competing refiners were able to extract concessions from respective State Governments for setting up their projects in the hinterland, tax sops had come to play a major role in defining the viability of the Guru Gobind Singh Oil refinery.

(This article was published in the Business Line print edition dated June 11, 2005)
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