Jaipur: The state government will pay INR 6,200 crore as part of its equity share in the Pachpadra refinery, instead of INR 3,700 crore as per the original plan. The additional INR 2,500 crore will be its equity share for cost escalation.
After HPCL, the majority partner with 74% stake in the joint venture company HPCL Rajasthan Refinery Ltd (HRRL), said that the cost of the project had escalated to INR 72,000 crore from the original INR 43,000 crore, the state government appointed central PSU Mecon Ltd to review the demand.
In its report, Mecon found the cost escalation demand to be genuine. It cited the expansion of the refinery’s petrochemicals capacity as one of the major reasons. Foreign currency fluctuation, change in tax regime (VAT to GST), and the increase in prices of construction materials such as steel and cement are the other factors, the report said.
The state government was ‘dilly-dallying’ on accepting HPCL’s cost escalation demand, which was first made in August 2021. The state petroleum department then appointed Mecon to do a review.
A finance department official said that they accepted the report, and the government was now willing to share the cost escalation of INR 2,500 crore with HPCL. Though TOI contacted senior officials of the petroleum department, they failed to respond.
As per the Mecon report, the increase in capacity of petrochemicals raised the refinery cost by INR 11,000 crore. Exchange rate fluctuations had an impact of INR 1,000 crore. The change in tax regime also increased the cost by INR 1,500 crore. Besides, the report said that Covid-19 too took the cost of the project up.
In February, Union minister of petroleum and natural gas Hardeep Singh Puri had said that Rajasthan’s equity in the Pachpadra oil refinery may reduce by 10% to 16% if the state does not share the increased project cost.
As per HRRL estimates, the state government will generate state GST of about INR 5,000 crore annually. “Given the revenue visibility,” the official in the finance department said, “It is not going to be a burden on the state.”
As per the latest announcements, the refinery will be inaugurated in March 2024, just before the general election code of conduct comes into effect. However, the refinery will undergo testing for 3-4 months before starting normal operations.
