Haldia Petrochemicals Ltd, (HPL) a three-way venture in which the West Bengal government is a major partner, has been given a body-blow by Union finance minister P Chidambaram?s decision to re-impose an import duty of 5% on naphtha, the raw material from which HPL makes polymers.
Two years ago, the duty on naphtha was brought down to zero from 5%, together with the duty on polymer imports, which was reduced to 5%. With the latest change, there is no duty differential between raw material and product.
Swapan Bhowmik, managing director of HPL, said the duty will straight away put a squeeze of Rs 320 crore on margins.
Since April 2007, naphtha prices have increased by 36% and are now at a historically high. He said HPL is the only petrochemical unit in India that has to import naphtha, since the other petrochemical producers either use natural gas or make their own naphtha. For 2006-07, HPL reported a profit before tax of around Rs 500 crore on a turnover of Rs 8,300 crore.
Bhowmik said HPL consumes the entire naphtha production of the Haldia refinery of government-owned Indian Oil Corp and imports around 60-70% from West Asia. But, because of the import-price parity formula, HPL will have to pay the higher cost on its entire naphtha consumption, whether imported or domestically-produced.
HPL consumes around 1.70 to 1.75 million tonne of naphtha a year. Bhowmik said the steady increase in crude petroleum prices over the past year has already added 36% to the global price of naphtha, and the re-imposition of duty on naphtha will be a crippling blow. ?Re-imposition of import duty on naphtha will be a crushing blow to the development of petrochemical industries in India,? Bhowmik said.