Amaravati: Petrochem plant hits Viability Gap Funding block

Amaravati: Petrochem plant hits Viability Gap Funding block

  • Setting up of a greenfield crude oil refinery and petrochemical complex was mandated under AP Reorganisation Act, 2014, but the project has been pending for over seven years
  • The Centre insists that Rs 5,615 cr Viability Gap Funding is needed to make project viable, but the State govt contends that cut in corporate tax and interest rates will make it viable

Amaravati: The petrochemical complex, proposed to be jointly set up by GAIL and HPCL at Kakinada in the state, seems to be getting delayed as the Centre and the state governments wrangle over the viability gap funding (VGF).

While the Centre insists that the Rs 5,615 crore VGF "is necessary to make the project viable," the state contends that the Rs 32,901 crore project could become viable without any VGF due to the reduction in corporate tax and interest rates.

Union minister of state for petroleum and natural gas Rameswar Teli told Rajya Sabha on Wednesday that the AP government has to take "an appropriate decision" on the issue "in the overall interest of the state" as the project would have a "direct, indirect and induced impact on the economy."

"The ministry of petroleum and natural gas has conveyed to the AP government that refinery and petrochemical projects are capital-intensive and require huge amounts of investment. Oil Public Sector Undertakings (PSUs) have indicated to the state that VGF is necessary to make the project viable," Teli noted.

Establishing a greenfield crude oil refinery and petrochemical complex has been mandated under Schedule XIII of the AP Reorganisation Act, 2014, but the project has been hanging fire for over seven years now.

After a feasibility study by Engineers India Limited, GAIL-HPCL signed a memorandum of understanding with the AP government during the Partnership Summit in January 2017 for setting up the 1.5 MMTPA petrochemical complex at a cost of Rs 32,901 crore on a 2,000-acre site in the Kakinada Special Economic Zone.

But the project did not take off as the VGF became a bone of contention between the Centre and the state. The proposed complex, with a cracker unit, was supposed to produce ethylene and its derivatives.

BJP MP G V L Narasimha Rao, who raised the issue in Rajya Sabha, told PTI that the project could be revived if the state government was willing to contribute towards VGF. He said the state's economy would have benefitted hugely from this investment, rather than the unbridled expenditure under 'freebie' schemes.

"It makes eminent sense for a state like AP, which is heavily deficient in manufacturing and industrial activity, to secure the project. (Chief Minister) Jagan is making a wrong decision by not grabbing it," Narasimha Rao remarked.

It was due to the shortsightedness of both (former CM) N Chandrababu Naidu and Jagan Mohan Reddy that AP was being deprived of a huge petrochemical complex, the MP lamented. "Our Chief Minister has already requested the Centre for its support to take forward the strategic project without any VGF.

This will go a long way in fulfilling the commitment made under the AP Reorganisation Act, 2014," state industries and Infrastructure minister Mekapati Goutham Reddy said. Official sources said the Centre has asked Engineers India Limited and SBI Caps to re-work the financials, following the recent changes in the corporate tax structure and interest rates, to possibly salvage the project.

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