Govt panel insists for zero percent duty on imported LNG

19 Sep 2011 Evaluate

An inter-ministerial committee chaired by planning commission member Saumitra Chaudhuri, has recommended to remove custom duty on imported Liquefied Natural Gas (LNG) instead of providing high subsides. The panel has demanded for slicing customs duty on imported LNG to zero, instead of cross-subsidizing the high-priced imported fuel by making domestic natural gas users pay more. However, the Department of Revenue, which is also a part of the inter-ministerial committee, has opposed the suggestion.

The panel has proposed that the import duty on LNG should be aligned with that of crude oil, on which, the government has already reduced the custom duty to zero from 5% in June. The panel also suggested that government should treat LNG/natural gas as a declared good, so that they have a common concessional rate of VAT. It is reported that ‘the Department of Revenue (which was also part of the committee) has not agreed to the proposal for aligning import duty on LNG with that of crude. On the issue of declared good status in regard of VAT, the Department of Revenue did not wish to record a view.’

The panel, which in its draft report a few months back had suggested averaging out the price of costlier imported LNG with cheaper domestic gas, did a complete vice versa in its final report by saying the proposal was not feasible. The averaging out of prices or pooling would have made users of cheaper domestic natural gas paying twice the amount that they pay now, so that the imported LNG could be sold at an equal rate. ‘The committee does not recommend a pooling mechanism for natural gas at the overall level, nor does it recommend price pooling on a sectoral basis,’ report noted.

The panel in its August 25 report had said that the preferential allotment of domestic gas should be done to the priority fertilizer and power sectors only and other consumers like steel plants should be allocated imported LNG. Presently, domestic gas is currently priced at $4.2-5.5 per million British thermal units (mmBtu), whereas the fuel imported through ships in its liquid form is priced at $10-14 per mmBtu.

‘These (non-priority) users operate in a market environment where their output prices are market-driven, with no regulatory burden, and hence, they should be able to pass on the higher costs of gas feedstock,’ the report said.

The government owned, major gas distribution firm GAIL India and Petronet LNG, which is also part of the panel, have been lobbying hard for pooling of gas prices as LNG, which is presently imported under long term contract from Qatar will cost upward of $12 mmBtu from 2014, whereas supplies under a new contract with Australia were priced at $14.5 per mmBtu. ‘The recommendation put forth here does not envisage any form of pooling at the all-India level, cutting across industries,’ the report noted.

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Govt panel insists for zero percent duty on imported LNG

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