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Subsidy scare on Assam cracker

New Delhi, Feb. 23: The Assam gas cracker project has run into rough weather with the latest estimates showing that the Centre will have to bear a back-breaking subsidy burden of over Rs 6,500 crore to sustain the venture.

Sources said that the ministry of chemicals and fertilisers will soon be forwarding these harsh economic facts to the Union Cabinet so that a suitable decision can be taken on the issue.

According to official sources, the total value of the 2 lakh tonnes of ethylene per annum, that the project is envisaged to produce, would be around Rs 517 crore. This has been calculated with anethylene price of roughly Rs 2,600 per tonne based on cost insurance and freight at Haldia plus 10 per cent customs duty.

However, in order to get the project going, the government will have to first dole out a capital subsidy of Rs 477 crore. It will then have to shell out over Rs 400 crore every year as subsidy for supplying the gas feedstock to the project at a concessional price. Since the project is envisaged to have a 15-year life span, the total amount of the subsidy would exceed Rs 6,500 crore.

The gas cracker project forms part of the Assam Accord of 1985. The Centre had agreed to encourage the setting up of the unit. The Assam government selected Reliance Industries as a partner for the project and formed a joint venture in 1997 called Reliance Assam Petrochemicals Ltd (RAPL).

As part of the concessions announced for the project, the government had decided to give a subsidy of Rs 377 crore to RAPL to implement the project. Another Rs 100 crore subsidy would have to be given to upstream oil majors ONGC and Oil India for installing compressors and other infrastructure to supply natural gas to RAPL.

Since the quantity of natural gas available in the region is not sufficient to produce 2 lakh tonnes of ethylene, RAPL had requested that LPG should be provided as supplementary feedstock to fill the gap. Indian Oil Corporation is reported to have been nominated as the LPG supplier.

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