Reliance Petro may recover costs by ’10

Reliance Petroleum Limited (RPL), a subsidiary of Reliance Industries Limited (RIL), is expected to recover its costs in the first 2.5 years of its operations. The Jamnagar refinery of RPL, with a refining capacity of 580,000 barrels per day, is expected to be on stream in the third quarter of this fiscal.

According to sources close to the company, RIL estimates a net income of Rs 8,190 crore in the first full year of operations in FY10. The refinery has a capital cost of Rs 27,000 crore. The refinery, promoted as an export-oriented unit (EOU), is likely to be commissioned by September '08, after which RPL would benefit from the shortage in global refining capacity.

According to a Mumbai-based analyst, RPL's superior product mix, coupled with advanced secondary processing, would enhance its GRMs, above industry benchmarks. These factors, along with the 100% tax-break on export earnings for the first five years of commissioning, would support healthy financials.

The proposed refinery is expected to be superior to both regional refineries and RIL's existing refinery with regard to its superior complexity and improved yield of value added products, added RIL officials. They also said that the refinery would be able to supply ultra low sulphur gasoline and diesel to meet tighter fuel emission norms and flexibility to handle heavier crude, implying savings on crude cost by taking advantage of the wider differential in heavy light crude.

In the past two decades, the refining capacity remains under investment but demand for petroleum products has increased. Demand from countries like China, India, other emerging nations and the US has led to scarcity of refining capacities across the globe. This robustness in market expansion has resulted in average capacity utilization of 88.9% in the past year, as against 84.7% over the past five years.

SOURCE:

The Financial Express

Tribunals, courts to decide oil, gas tax holiday: FM

Finance Minister P Chidambaram today failed to clear the confusion over the seven-year income tax holiday for oil and gas production.

Chidambaram said various tribunals and courts hearing the case would decide if oil and gas production would continue to get the tax holiday beyond April 2009.

Chidambaram was expected to continue the income tax holiday on oil and gas production after Petroleum Minister Murli Deora told him that the withdrawal would discourage investors in the country's exploration and production sector.

Refineries' tax holidays extended
Chidambaram said since three government-owned crude oil refineries coming up in Paradeep, Bathinda and Bina would be able to begin production only by April 2009, the sunset clause for the seven-year income tax holiday for refineries would get postponed to March 31, 2012.

In the Budget 2008-09, the finance ministry had proposed to withdraw the tax holiday for all refineries that begin operations after April 1, 2009.

The petroleum ministry had lobbied with the finance ministry for continuing with the tax holiday as construction of the three refineries, by Indian Oil Corporation (IOC), Hindustan Petroleum Corporation (HPCL) and Bharat Petroleum Corporation (BPCL), respectively, began when the tax holiday was in place.

"The continuation of the tax holiday till 2012 makes our Paradeep refinery feasible, else our rate of return would have come down drastically," said a senior IOC official. The company is planning to invest around Rs 25,000 crore on the 15 million tonne per annum (mtpa) refinery and an adjoining petrochemical plant.

An HPCL official said without the tax holiday, the rate of return on their nine-mtpa refinery would come down to 20 per cent from the current 25 per cent.

Reliance Petroleum's 29 mtpa refinery is scheduled to begin production later this year while Essar Oil is expanding its refinery capacity in Gujarat to 34 mtpa from the current 10.5 mtpa.

SOURCE:

Business Standard