ONGC has become the latest high-profile developer to voice concerns over the adverse impact of certain proposals in the Direct Taxes Code (DTC) revised draft on its Special Economic Zone (SEZ) plans. In a letter to the Commerce Secretary, Dr Rahul Khullar, the ONGC Chairman and Managing Director, Mr R. S. Sharma, has said that the DTC, in its present form, would severely hit the prospects of its Rs 50,000-crore multiproduct SEZ at Mangalore in Karnataka.
The SEZ, when completed, is to be spread over 4,000 acres and is expected to provide employment to over 50,000 people, Mr Sharma said.
Impact on MSEZ
He has requested the Commerce Secretary to ensure that the DTC does not take away any of the benefits provided by the SEZ Act, both to the developers and to the units.
The DTC will have a severe impact on the economic viability of the investments made for the development of infrastructure in the Mangalore SEZ (MSEZ), the ONGC CMD said.
It would also violate the trust reposed by the downstream industries, some of which have already made huge investments to develop units, and others that propose to invest in the intermediate and downstream petrochemical units at the MSEZ.
He said some of the prospective domestic and international investors exploring the feasibility of developing intermediate petrochemical units in MSEZ are putting their discussions on hold till the Government takes a final decision on the DTC.
The DTC proposes to do away with the income-tax holiday to the units coming up in SEZs after the implementation of the Code from April 1, 2011. Several developers have already written to the Centre that if the tax benefits are withdrawn, no new units may come up at SEZs, in turn affecting the viability of SEZ projects.
ONGC, along with the Karnataka Government, IL&FS and Karnataka Chamber of Commerce and Industries, is developing the MSEZ near ONGC’s subsidiary Mangalore Refinery and Petrochemicals Ltd. Already Rs 345 crore has been invested in the MSEZ. Infrastructure, including water supply, power distribution, roads and effluent treatment plant, is being developed at the MSEZ to cater to the needs of the upcoming units.
A sector-specific petroleum and petrochemicals SEZ is being developed in the first phase for which 1,453 acres have been acquired.
The remaining land acquisition for MSEZ, which will ultimately be a general purpose multi-product SEZ, would be completed by December, Mr Sharma said.
Mr Sharma has written that the anchor units and some of the tenants in the Phase-I of the project have already commenced their construction activities, adding that many units will start coming on stream from FY13 onwards, given the long gestation period of units in the petrochemical sector.
The SEZ Act provides developers 100 per cent I-T exemption for a block of consecutive 10 years of the first 15 years. It also grants units total I-T exemption on export profits for the first five years, and 50 per cent exemption for the next five years.