Glad tidings

New Delhi, May 18: Oil refining firms in which the government does not have majority stakes may be eligible for tax benefits if they start production by March 31, 2010.

The Congress-led government plans to change the rules following a decision taken last week at a meeting between the finance ministry and the petroleum ministry.

A beneficiary of this rule change will be the refinery at Bhatinda in Punjab where PSU Hindustan Petroleum Corporation Limited and Mittal Energy Investments of L.N. Mittal each has a 49 per cent stake.

Earlier last month, the government had ruled that refineries in which it held a 100 per cent stake would be eligible for tax sops if they were built by 2012.

This followed a new clause in this year’s budget stating that the tax holiday for refineries would be withdrawn if the refining of mineral oil begins after April 1, 2009.

However, this implied that the refineries at Bhatinda, Bina, in Punjab, and Paradip (Orissa) where the government had substantial investments would lose out on the benefit.

The finance ministry is planning to change the clause so that benefits will be available to refineries where the government has at least a 49 per cent stake and where production will start by March 31, 2010.

Officials said that the chief minister of Punjab had also written to the government seeking changes in rules as it would have hit the Bhatinda refinery which is coming up in the border state.

At Bhatinda, the refinery will have an initial annual capacity of 9 million tonnes and cost around Rs 18,000 crore. Financial institutions will hold 2 per cent in the project.

Indian Oil Corporation Ltd is building a 300,000 barrels-per-day (bpd) refinery-cum-petrochemical complex at Paradip along the Orissa coast. It will commission the project by 2011-12.

The Bina refinery of Bharat Petroleum Corporation Limited (BPCL) in Madhya Pradesh is expected to be completed by December 2009. Oman Oil Company will partner BPCL in the project.

In its aim to become a global refining hub, India plans to add 2.14 million bpd by 2012 to its existing 2.98 million bpd capacity.

Export of the oil industry now accounts for 17.5 per cent of the total exports of the country. The petroleum ministry has been promoting value-addition in refining to make the country an export hub of oil products.

Moves for the relief come at a time when the state-owned oil companies are fearing a loss of Rs 200,000 crore from selling fuels below costs.

Last week they said they wanted to stop giving new LPG connections as well as stop the import of diesel. If the companies stop issuing new connections, they could prevent a loss of Rs 305.90 per cylinder.

However, the government has decided not to agree to the oil retailers’ demand. Sources said had the government agreed, it would prove to be politically disastrous.

“The proposal to stop LPG connections was made earlier in December too,” the sources said.