The genesis of the current controversy lies in what MRPL's licensed capacity is and whether it has built up more than this. Under the somewhat-complex formula used for calculating the money that was to be paid by the Government to a refinery, if MRPL's capacity is more than the licensed one, it would have been paid more than it should have been.

The reason is simple. Under the earlier control regime (the oil sector was totally controlled by the Government till March 31 this year), refineries were paid a two-part tariffby the Government -- one, a fixed 12 per cent post-tax return on the basis of their capital cost, and the other, on the basis of their actual production.

Since it cost MRPL Rs 2,600 crore to build its refinery two years ago, its fixed or per tonne cost was based on a 3 million tonne capacity. But, the Government contends MRPL's capacity is actually 3.75 million tonnes. In other words, the amount it actually spent on building the 3 million tonne refinery it was licensed to do, was less than Rs 2,600 crore. Since the government was reimbursing MRPL on the basis on its capital cost, it should then have paid it less. This difference is what has been calculated to be Rs 100 crore.

In 1996-97 itself, the first year of MRPL's commercial production, with suspicions arising over whether MRPL's capacity was indeed correct, the ministry of petroleum constituted a committee headed by A.G.A. Tauro, former chief of IOC, to examine the issue. After the Tauro committee said that MRPL's capacity was indeed higher than thelicensed one, and this was contested by MRPL, another committee under Ravi Kumar of the Centre for High Technology (CHT) was constituted in 1997-98. This committee put MRPL's actual capacity at 3.75 million tonnes.

According to the ministry of petroleum, MRPL's Vacuum Distillation Unit (VDU) and its hydrocracker have been built to handle 3.75 million tonnes of crude. MRPL, however, points out that this happens in all refineries. All equipment suppliers, they point out, build in a certain cushion, or extra capacity, to ensure that the equipment finally delivers to specifications. So, in this case, since it made commercial sense for MRPL to produce more -- the OCC also pays them on the basis of the actual production -- they `flogged' the refinery, ran it with very few shut-downs, to produce more.

While this debate carried on for over a year, some months ago, the government decided that it would work on the assumption that MRPL's actual capacity was indeed 3.75 million tonnes. The Oil Coordination Committeewas then asked to calculate the extra amount that had been paid to MRPL due to this.

How MRPL over-charged the Govt