Govt to ensure cracker project completion

Plans to infuse additional subsidy so project executing company doesn8217;t suffer loss irrespective of expenses

The Congress-led UPA government plans to infuse more subsidy than what was approved by the Cabinet Committee on Economic Affairs for the Assam Gas Cracker to fulfill the 1985 promise by its erstwhile leader Rajiv Gandhi.

A proposal by the Petroleum ministry is seeking the ad-hoc subsidy to ensure that the joint venture company JVC building the project is assured an 11 per cent return on its investment, irrespective of its expenses, each year.

The PIB, which met yesterday to consider the Petroleum Ministry8217;s proposal, has directed that the extra subsidy be considered six months before the cracker is commissioned. Officials say the extra subsidy would be more than Rs 800 crore over the 15-year period.

While granting a capital subsidy of Rs 2,138 crore for the project, the CCEA last April approved an additional feedstock subsidy of Rs 908.91 crore to compensate ONGC and Oil India for their loss of Rs 1,280 on every thousand cubic metres TCM of gas sold to the cracker. It did not provide for subsidy on naphtha supplied by Numaligarh Refineries NRL.

However, all three refused to supply the feedstock as it was resulting in losses. While ONGC and OIL sought compensation of their actual loss of Rs 2,080 per TCM, NRL wanted Rs 27,000 for a tonne of naphtha claiming its annual loss on sales to the cracker would be Rs 200 crore. Without this price, NRL 8212; also an outcome of the Assam Accord 8212; would get wiped out in five years, claimed NRL.

Concurrently, the project funding cost also rose by 1 per cent as the lending rate climbed to 9 per cent from the 8 per cent assumed while preparing the project feasibility report. 8220;Capital cost of the project was based on August 2005 prices. The project cost is expected to escalate due to increase in interest during construction, inflation, etc,8221; said the proposal to the PIB.

In the light of these changes, the Prime Minister8217;s Office asked the PIB to revisit the project that the Rajiv Gandhi government promised to the All Assam Students Union and All Assam Gana Sangram Parishad in August 1985.

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The principal secretary to the PM observed at a meeting last September that the project was of 8220;a very high priority and all concerned must make necessary efforts to ensure its expeditious implementation8221;.

To keep the project on track, the revised proposal recommended that NRL be paid either the global FOB price of naphtha or the cost of crude oil in making it, whichever is less. For gas, it advocated that ONGC and OIL be compensated the under-recovery of Rs 800 per TCM with 2.5 per cent price rise each year.

It recommended that the IRR be raised by 1 per cent to 11 per cent to account for the increase in lending. Annual operational cost 8212; earlier considered constant for the entire 15 years 8212; is being made variable allowing for escalation 8216;capped at 5 per cent per annum8217;.

The additional subsidy, arising out of these changes, would be paid by the national exchequer at the end of each fiscal year to assure the promoters 8212; GAIL, OIL, NRL and Assam Industrial Development Corp 8212; that the project would provide them 11 per cent return.