Budget move forces ONGC to review plans

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New Delhi, Mar 5 : With finance minister P Chidambaram's proposal to withdraw tax holidays to new refineries and oil and gas ventures, Oil & Natural Gas Corp (ONGC) has decided to review its planned new projects at Kakinada and Mangalore.

ONGC had planned to set up a 15-million-tonne greenfield refinery at Kakinada and had also planned to expand the capacity of Mangalore refinery to 30 million tonne, but after the withdrawal of the seven-year income tax holiday, the projects would be reviewed, ONGC chairman RS Sharma said here.

The Budget for 2008-09 has proposed withdrawing the income tax holiday for refineries commissioning after April 1, 2009, a move that would also impact the financials of steel baron Lakshmi Mittal's maiden entry into refinery business through Bhatinda refinery with HPCL that is to come up in 2012.

According to ONGC, the finance minister's proposal will have a bearing on projects worth $40 billion lined up over the next few years.

It will also impact expansion plans of Essar, which has planned to treble its Vadinar refinery capacity by 2010. "When there was a conscious decision to make India a refining hub, this withdrawal of tax incentive will not only impact projects but will also be a negative sentiment for the sector," Sharma said.

IndianOil and Bharat Petroleum have also planned new refineries and expansion of the existing ones, but they will not be able to avail the tax holidays as the projects are to be commissioned much later than the April one, 2009 deadline.

However, Reliance Petroleum's 29-mt export-oriented refinery at Jamnagar would be able to avail the tax benefits as it is coming on stream by the year-end.

Sharma said the contracts for oil and gas blocks that have already been signed should not come under the purview of the new proposal.