Subsequent to the withdrawal of this benefit, the additional income tax burden over a period of 7 years works out to be approximately Rs 1,000 crore. Additional outflows of tax would severely impact the debt-service capability levels of the project. On an overall basis, the project IRR is adversely impacted by more than 1%, which was already at a threshold level," HMEL told the petroleum ministry. HMEL is a joint venture company of state-owned HPCL and LN Mittal-promoted Mittal Energy Investments Pte, Singapore and is implementing the 9-million tonne per annum (mtpa) refinery in Punjab.
The Bhatinda refinery project of HMEL is being financed with a debt-equity ratio of 1.60:1. According to HMEL, a consortium of 26 nationalised banks and financial institutions have validated the financials of the project including the fact that there is a substantial benefit of availability of tax holiday to the refinery. It was only after this that HMEL told the ministry that it was sanctioned a debt amounting to Rs 10,510 crore by the banks and FIIs for financing the project. The capital cost of setting up of new refineries has gone up steeply by Rs 2,000 crore per million metric tonne. The new refineries would therefore need adequate returns to service their debt and fixed cost.
The petroleum ministry has already taken up the issue with the finance ministry, which seems reluctant to withdraw the sunset clause proposed in the Budget for 2008-09. At least 60 mtpa of new/expansion of refinery projects (excluding RIL's new 29-mtpa refinery at the Jamnagar SEZ which is expected to be commissioned in 2008) will get impacted in case the sunset clause is not withdrawn.
The sunset provision on section 80-IB (9) of the IT Act included in the memorandum to Finance Bill withdraws the exemption of 100% of profits for a period of 7 years available for commercial production of petroleum and natural gas for undertakings where refining of mineral oil begins after April, 1, 2009.