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Numaligarh refinery expansion: Not needed
Jul 02: Numaligarh refinery is awaiting government sanction for a Rs 20,000 crore refinery.
8It has sought an excise duty concession, capital subsidy and big set of incentives from the state government to ensure project viability.
8Even though the company remains hopeful of a sanction, there are many, including this website, who are skeptical about investing in a subsidy-driven refinery in the North East of India.
8When last heard, a 6 MMTPA refining capacity was sought to be built with a stiff doze of capital subsidy and an excise duty relief running up to a whopping Rs 8400 crore a year! The figures have since been fine-tuned to make them more platable but yet they will be unacceptably high.
8When the refinery is expanded, most of the the extra capacity will only cater to demand originating outside of the North East. The industrial climate in the region is poor and it is unlikely that enough demand for petroleum products will be created there to keep a 9 MMTPA refinery going. There are three other refineries already operational in Assam and jostling for market share. Then again, what is the point of importing crude via a pipeline all the way from the East Coast, and then taking finished products back, perhaps for the same distance to the mainland through a pipeline that will run parallel to the one importing crude?
8The question that immediately comes to mind is why is the government entertaining such a preposterous demand. The only plausible answer is that the Modi led BJP government may see it as a sop to the industry-deficient and militancy ridden North East of India. This was exactly the logic on which the existing refinery was set up when Rajiv Gandhi signed the Assam Accord with the agitating All Assam Students Union in 1984.
8But a lot of a water has flown down the Brahmaputra since then. It is stagnating crude production from the Assam fields that has prompted BPCL, Numaligarh's mother company, to suggest a 1,350 km crude import pipeline all the way from Paradip to feed the refinery expansion. It is also a well established fact that a state-of-art refinery employs very few people and the Numaligarh refinery per say had little or no economic linkages with the rest of Assam's economy. More so, as no refinery related ancillaries have come up in Assam.
8Bangladesh and Myanmar are meant to be target markets for the Numaligarh refinery when its refinery capacity expands. The question is should a subsidised Indian refinery be selling petroleum products to a neighbouring country or to its own people?
8It is also a myth that Numaligarh can help sell Indian petroleum products in Myanmar. The route to Myanmar is long and torturous, and traverses difficult, militancy ridden terrain. A pipeline will be unviable given low offtake in areas bordering India and the fragile border roads will not be able to take the load of tankers ferrying MS and HSD from the plains of Assam to the Burmese border.
8Numaligarh refinery enjoys a 50% excise duty concession on its existing capacity and its GRM was an incongruous $31/bbl in 2017-18. Excluding the excise relief, the GRM came to $11/bbl.
In this context, there is absolutely no reason for grant of any kind of concession to the refinery.
8If anything, the BJP led local government should lobby with the centre that the concession that was meant to be granted to the refinery be pumped back as cash into the state to build schools and hospitals and spruce up its dilapidated infrastructure.
8It is however to be noted that all central governments become a little weak-kneed when it comes to dealing with the North East. Manmohan Singh, before he demitted office, forced GAIL to set up a subsidized petrochemical cracker unit in Dibrugarh, in the easternmost foothills of the Himalayas. The central government continues to foot its capital and fuel subsidy bills.
8The Numaligarh refinery proposal may still elicit a sanction from New Delhi but that will be for the wrong reasons.
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