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Social commitment levy will hurt viability of new refinery at Barmer, submits HPCL

Our Bureau Mumbai | Updated on September 30, 2018

FILE - In this Thursday, Aug. 31, 2017, file photo, a flame burns at the Shell Deer Park oil refinery in Deer Park, Texas. Companies have reported that roughly two dozen storage tanks holding crude oil, gasoline and other fuels collapsed or otherwise failed during Harvey, spilling a combined 140,000 gallons of fuel, according to an Associated Press analysis of state and federal accident databases. Federal rules require companies to be prepared for spills, but don't require them to take any specific measures to secure the massive fuel storage tanks at refineries and oil production sites that are prone to float and break during floods. (AP Photo/Gregory Bull, File)   -  AP

2.5% of the project cost for enterprise social commitment amounts to ₹1,078 crore

Allocating 2.5 per cent of the total project cost for a so-called enterprise social commitment (ESC) levy would upset the economics of the planned greenfield refinery and petrochemical complex in Rajasthan’s Barmer district, Hindustan Petroleum Corporation Ltd (HPCL) — which is building the refinery — said while seeking changes to the environment clearance for the facility.

The 9 million tonnes per annum (mtpa) refinery and petrochemical project will cost ₹43,129 crore.

Adds to the burden

“2.5 per cent of the total project cost for enterprise social commitment amounts to ₹1,078 crore with the approved cost of the project being ₹43,129 crore. Such an allocation is not feasible considering the economics of the project,” HPCL submitted before the expert appraisal committee attached to the Ministry of Environment, Forest and Climate change, according to a document reviewed by BusinessLine.

“This project has been approved with a viability gap funding (VGF) of ₹1,123 crore per annum in the form of interest-free loan for 15 years from the Government of Rajasthan. The same is to be returned by the joint venture company to the Government of Rajasthan from the 16th year onwards. Hence, allocation of 2.5 per cent of the total project cost towards enterprise social commitment amounting to ₹1,078 crore will further burden the project and impact the project economics,” HPCL said.

CER commitment

The Environment Ministry decided to levy 0.25 per cent towards corporate environmental responsibility (CER) for a greenfield project of more than ₹10,000 crore, according to a May 2018 office memorandum issued by the Ministry.

The amount allocated on ESC, as a part of CER as per the Ministry order, will be ₹107.82 crore for the new refinery. The expert appraisal committee, after considering the matter during a meeting in August, reiterated its earlier recommendation to allocate at least 2.5 per cent of the project cost towards enterprise social commitment and stipulated in the environmental clearance granted in September 2017.

“However, in view of the Ministry’s office memorandum regarding Corporate Environmental Responsibility (CER), stipulating guidelines for fund allocation towards CER, the expert appraisal committee suggested that the Ministry may take a view in this regard,” the EAC wrote in the document.

Published on September 30, 2018

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