The state-run firm wants 950 hectares of land for the refinery free of cost and exemption from sales tax on sale of petroleum and petrochemical products, industry sources said.

ONGC [Get Quote] also wants fiscal concessions given to a Special Economic Zone. It wants the Andhra Pradesh government to give free power and water supply to the project, provide road and rail connectivity, develop sewage and refinery effluent disposal system and communication connectivity.

Sources said the company has justified its demands as even the enhanced capacity of the refinery to 15 million tonne promised only 10.27 per cent rate of return that would become negative in case of a 10 per cent rise in capital cost.

ONGC's subsidiary Mangalore Refinery, the company set up to implement the refinery project, is to hold 26% stake in Kakinada Refinery Petrochemicals Ltd. IL&FS will hold 51 per cent stake and the balance would be with an Andhra Pradesh government-appointed agency.

Incidentally, the automobile-to-banking Hinduja Group has evinced interest in picking a majority stake in the refinery project. The project is the brainchild of former ONGC chairman Subir Raha, who has since joined the Hinduja Group.

Sources said ONGC has made it clear that it would proceed with the project only after getting confirmation from the state government for the incentives it had sought.

ONGC had engaged Engineers India Ltd [Get Quote] for techno-economic feasibility study for establishing the initial plan of this 7.5 million tons capacity export-oriented refinery, while Nexant was hired for conducting market demand study both for export markets as well as hinterland domestic markets. SBI [Get Quote] Caps' financial appraisal of the 7.5 million ton capacity refinery found the project economically unviable as the returns estimated were below the hurdle rate.

EIL was again engaged for carrying out a detailed feasibility report for an augmented capacity of 15 million ton as advised by merchant banker SBI Caps. Sources said the estimated cost of setting up a 15 million ton refinery with high complexity configuration stood at Rs 25,000 crore (Rs 250 billion). Besides, Rs 600 crore (Rs 6 billion) would be needed to build a single-point mooring and the sub-sea pipeline for transportation of crude oil to the project site. The project is to have a debt-equity ratio of 2:1 (Rs 17,000 crore debt).