Mumbai-based infrastructure conglomerate Essar group has withdrawn its plans to build a 1,125 hectare Special Economic Zone in Jamnagar because of the adverse economic environment, a commerce ministry official said.

The proposal was to set up a 16-20-million-metric-tonne-a-year petrochemical refinery at an investment of Rs 15,000 crore, one of the largest SEZ proposals, according to information available on the company's website.

The Essar SEZ had received "formal approval", a second-stage approval that means the project had land in its possession (an earlier stage is when SEZs receive "in-principle approval", when their plans are approved but the land has not been acquired).

Essar did not respond to an email questionnaire asking why it had withdrawn and seeking details of its alternative plans.

The development comes soon after India's largest realtor, DLF Ltd withdrew a "notified" SEZ in Delhi owing to doubts about its financial viability. Notification, which is the final approval for any SEZ application, makes the zone eligible for tax benefits under the SEZ Act of 2005.

Essar's project was, however, already facing a controversy over the declaration of land.

In August this year Essar had requested the Board of Approval, an inter-ministerial approval body for these tax-free enclaves, to reduce the area of the SEZ to about a fifth of the originally proposed 1,125 hectare. Essar also wanted the zone re-classified from its original multi-product classification to one for petrochemicals and petroleum.

The department of revenue, which has a representative on the BoA, said the zone did not have the land in its possession and wanted to know how the zone received formal approval in these circumstances.

In its meeting on August 1, the BoA, which is chaired by Commerce Secretary Gopal K Pillai, had decided to examine the possibility of the developer misrepresenting facts.

The SEZ is located at a region where about 70 per cent of India's imported crude lands through oil tankers. Essar already has a 10.5-million-tonne-a-year refinery at Vadinar in the area. Jamnagar also houses Reliance [Get Quote] Industry Ltd's 29-million-tonne SEZ-based refinery and 33-million-tonne export-oriented unit-based refinery.

Essar's other SEZs in Gujarat include a 247-hectare engineering SEZ in Hazira, which is currently being developed.