Bhubaneswar, Feb. 1: The state government will re-negotiate terms and conditions with the Indian Oil Corporation on the issue of tax concession given to its 15-million-tonne Paradip refinery project, official sources indicated today.

Prime Minister Narendra Modi will dedicate the Rs 34,000 crore project to the nation on February 7.

Under the present agreement, formalised in 2004 between the state government and Indian Oil, the state is not to impose value added tax (VAT) for 11 years.

"A rough calculation shows that the state will lose Rs 23,000 crore on account of just the interest," finance minister Pradip Amat told The Telegraph.

The fresh agreement is required because Indian Oil was initially to set up a nine-million-tonne refinery, but it has now enhanced its capacity to 15 million tonnes. Besides, there has been a delay of five years in the commissioning of the project.

According to the MoU inked in 2004, the state had not only agreed to defer VAT for 11 years from the year of commercial production, but also promised exemption of central sales tax for 30 years, entry tax exemption on crude oil and exemption of sales tax for 11 years. This means that state would not receive any revenue from the sale of petroleum products from this refinery outside the state.

To facilitate the re-negotiation, the state government has formed a working committee with the development commissioner, finance secretary and the industries secretary as members.

Sources said the issue had been broached with Union minister of state for petroleum and natural gas Dharmendra Pradhan when he had called on chief minister Naveen Patnaik to invite him to the event on February 7.

Sources said Indian Oil was reluctant to negotiate a fresh agreement.

Protest by displaced

People displaced by the project today began an indefinite agitation, seeking employment and a rehabilitation package.

"We are not against the project. We have been forced to resort to the agitation. The company officials had held talks with us in December and committed to us to provide employment to one member from each of the 143 displaced families. They had promised to build dwelling units at the resettlement colony in Dhinkia," said displaced families' association president Abhaya Sahu.

"The company attaches emphasis on generating employment avenues for the affected landowners and also for people living in the peripheral areas of the project," said executive director of the Paradip oil refinery project Ramjee Ram.