New Delhi, Feb. 23: Indian Oil Corporation (IOC) has given its commitment to complete the Paradip refinery by 2009-10 but is willing to bring the deadline forward to 2008-09 if the demand for petroleum products picks up to justify the move.

The formal agreement between IOC and the Orissa government was signed last week with the state government agreeing to restore all the tax concessions that the oil major had asked for earlier. These include a deferment of the sales tax for 11 years and exemption of entry tax on crude oil to be processed at the refinery.

A senior petroleum ministry official told The Telegraph that construction work at the site would start within 16 months after the detailed feasibility report is ready and project appraisal has been carried out.

The delay in setting up the refinery will require a fresh look at the financial parameters of the project. The cost has already escalated from around Rs 8,000 crore initially to more than Rs 11,000 crore at present.

The foundation stone for the 9-million-tonne refinery project had been laid by Prime Minister Atal Bihari Vajpayee in May 2000 and it was scheduled for completion in 2004 so that the government could draw mileage in an election year.

The Paradip refinery has been hanging fire as the Orissa government had been dilly-dallying over the tax concessions. At the same time, the demand for petroleum products has been growing at a much slower rate than had been anticipated. For two of the last three years the demand for petroleum products grew at 2.8 to 3 per cent while in the third year it went up to 3.8 per cent. On the other hand, the expected rate of growth for these years had been 6 to 7 per cent.

The delay in commissioning the Paradip refinery will help IOC to start production at a time when there is a matching demand for petroleum products. Since it is a coastal refinery it also leaves the option for exports wide open.

The project has also assumed political importance with the Lok Sabha elections around the corner as the east is lagging behind the west in industrial development. A new refinery for the eastern region has been on the cards for a long time but the extra capacity created in the west has created a glut of petro goods with oil firms having to export their output.