Benefits of Budget proposal to abolish five per cent import duty on liquefied natural gas (LNG) seem to be only for the power generation companies such as NTPC and Reliance Power. The Budget proposes that natural gas/LNG imported for power generation by a power generation company is being fully exempted from basic customs duty.
Taking a dig at the proposal, industry observers say it seems more political than anything else. Though there has been a demand from the power sector for gas, not many in power are buying imported gas as is the case with others.
The industry was expecting that import duty on LNG will be for all sectors, a move that will not only benefit the importers but also consumers from like sponge iron and fertiliser sectors, besides power among others.
In his speech, the Finance Minister, Mr Pranab Mukherjee, said “Domestic producers of thermal power have been under stress because of high prices of coal… Full exemption from basic duty is also being provided to the following fuels for power generation: Natural Gas and Liquified Natural Gas…”
Mr Arup Roy Choudhury, Chairman and Managing Director, NTPC, had told Business Line that if the power major gets long-term price commitment, then it could look at setting up some generation capacity based on imported gas for consumers who demand peaking power. The company is in talks with GAIL and Petronet for long-term imported gas supply commitment at an affordable price.
According to reports, the Anil Ambani-promoted Reliance-Power was also in talks with major players to jointly set up an LNG terminal.
Mr J.P. Chalasani, Chairman, Association of Power Producers, and CEO Reliance Power, said “…Today's budget announcements include far-reaching measures in terms of rationalisation of import duties on coal, LNG and mining equipment, measures to ensure increased fuel availability by giving thrust to coal mining and reduced cost of borrowings for this capital-intensive sector.”
According guesstimates, the two existing terminals – Petronet LNG's Dahej terminal and Shell's Hazira terminal – and the soon-to-be-commissioned Dabhol terminal (March-end) will receive around 250 LNG cargoes in 2012-13. And the customs duty at the existing rate would have been around Rs 2,500 crore.
Domestic gas output has been on a decline with the production from the country's largest gas fields Reliance Industries-operated steadily falling after hitting a peak of 60 mmscmd in end 2009. Besides demand the availability of imported also depends on price and tie-up with the suppliers.
While domestically produced gas is available from $4.2-5.2/mmBtu, spot LNG is available at $13/mmBtu, and that from long-term contract is at $8/mmBtu. These prices exclude local taxes and levies as well as transmission tariff and marketing margin.
As on date, LNG re-gasification capacity in the country is 13.60 million tonnes per annum (10 mtpa at Petronet LNG's terminal at Dahej and 3.60 mtpa at Shell's terminal at Hazira).