"These demands are an alibi to delay the project," said a senior state government official. He wondered how a government can raise entry tax for others while granting exemption to IOC and that too on perpetual basis.The official said IOC was aware that these unreasonable demands cannot be fulfilled by Orissa or any other state government. But the PSU can easily get off the hook by passing the blame for the delay on to the state government.

According to him, IOC can not plead ignorance about the fact that the concession was withdrawn after the guidelines of the November 1999 chief ministers' conference came into force.

"Given a chance, IOC would have shelved the project for the time being," said industry sources. But this can kick off political trouble for the BJP-led coalition government at the Centre as the Prime Minister Atal Bihari Vajpayee had laid the foundation stone for the project in August 2000 amidst a lot of hype.

Industry sources said there was a glut in the petroleum product market in the country. Such is the situation that coast-based refineries were looking for opportunity to export products like naphtha, aviation turbine fuel (ATF), diesel and even petrol. Moreover, the petroleum market is going to be very volatile in the next 2-3 years as the government plans to de-administer the prices. To add to it, several existing refineries are planning capacity expansion.

Reliance Petroleum Ltd proposes to expand the capacity of its Jamnagar refinery from 27 million tonne to 40.5 million tonne by April 2002 by de-bottlenecking its facilities and installing another crude distillation unit (CDU).

"Perhaps the market scenario has made the IOC prudent enough not to go ahead with the project for some time to come," a market analyst told The Financial Express.

Till now, IOC and the state government have not entered into any formal agreement for setting up the plant at Paradip. The state government, vide its industry department letter on December 7, 1998, had agreed that concessions under the Industrial Policy Resolution 1996 would be extended to the priority sector project, jointly established by IOC and Kuwait Petroleum Corporation.

According to the resolution of 1996, the project would be given sales tax exemption for six years. On August 7, 1999, through another letter by the general manager, directorate of industries, the Orissa government assured that the exemption would be extended for another two years. Fifteen days after that, the state government extended the concession period to 11 years. There is no written agreement as such, state finance minister Rama Krushna Patnaik admitted at a press conference on Monday. Anyway, the government cannot give sales tax concession to the IOC project as it is bound by the guidelines of the Chief Ministers Conference,he added.