People watch the live telecast of the budget at an electronics showroom in Calcutta on Monday. (PTI)

Calcutta, Feb. 28: Finance minister Pranab Mukherjee turned a deaf ear to the call of Bengal chief minister Buddhadeb Bhattacharjee to withdraw the import duty on naphtha, dealing a body blow to Haldia Petrochemicals Ltd (HPL), the showpiece project of the state.

Despite several representations made by the company and a letter written by Bhattacharjee himself on January 21, Mukherjee did not oblige the state by scrapping the 5 per cent duty on naphtha, raising the spectre of net loss for the company next fiscal.

The company could end up losing Rs 400 crore as a result of continuation of the duty on naphtha, the main ingredient to make polymer used in the plastic industry.

HPL officials were not available for comment but they termed the budget as “deeply disappointing”. According to them, HPL was the only company in the country importing this chemical produced from crude oil.

“The duty hurts only Haldia and none else,” said an official, adding the company would continue to make representation before the government before the finance bill is passed in Parliament.

“There is a window of 6-8 weeks. We will try,” he said.

Hopes were running high at the Writers’ Buildings that Mukherjee and his revenue secretary Sunil Mitra, both hailing from Bengal, would take steps to protect the state’s biggest industrial venture.

Industry observers wondered whether politics took precedence over economics in the curious case of Haldia.

The relation between CPM leaders in Bengal and Pranab, which used to be very cordial in the past, has been strained after it became clear that there would be no split between the Congress and Trinamul Congress in the upcoming assembly elections in the state.

“It is quite possible that the Congress did not want to give the credit to the Left Front government. May be Mukherjee will keep it (withdrawal of import duty on naphtha) as a gift when the new government, possibly led by Trinamul chief Mamata Banerjee with coalition partner Congress is sworn in in May,” an industry observer said.

Financial strain

HPL officials said it would be a tightrope walk for the company, which could slip in to the red because of tax burden.

Crude prices have shot up following the crisis in the Arab world.

Naphtha prices have also spurted by $100 a tonne within a week to almost $950 a tonne without commensurate increase in product prices.

HPL exports nearly 27-30 per cent of polymer and 90 per cent of the chemicals. It buys around one fourth of its requirement of 2 million tonnes of naphtha under licence without paying tax.

It also buys a small quantity from Indian Oil Corporation’s Haldia refinery.

Import duty on naphtha for polymer manufacturing was lifted and the same on finished good (polymer) was halved to 5 per cent in March 2006.

However, in the budget of 2008, then finance minister P. Chidambaram reintroduced the duty on naphtha, while keeping that on polymer at 5 per cent, leaving zero differential between raw material and finished product.