Generation and gas utilities have told the government that the tax break on imported fuel for producing power, announced in the Budget, has failed to work on the ground because of narrow qualifying criteria. The Budget waived the 5% customs duty on liquid gas imports by power companies. The move was expected to reduce cost of LNG (liquefied natural gas) imports to help power producers tide over shortfall in domestic supplies.

But four months later, the country's biggest generation company NTPC and gas utility GAIL both state run entities have told the government that the duty exemption is of no use since power companies do not import gas directly.

ower ministry documents notes GAIL and NTPC as telling the government that “Import of LNG is capital intensive and it has its inherent risks associated with it along the entire LNG value chain. Power companies normally do not prefer to take exposure to this type of business risk. As a result, national oil companies take up import of LNG and distribute the same to downstream consumers in power.”

The documents note that "Under such circumstances, when generating companies are not importing LNG directly, the purpose of extending duty exemption is defeated with such qualifying criteria... It would be better that all (LNG) importers are allowed to avail this (customs ) exemption for the quantity sold to power generating companies.”

Liquid gas imports meet 40% of the country's gas requirement as domestic production is sagging. Liquid gas is imported through Shell's terminal at Hazira and Petronet's facility at Dahej, the biggest in the country. Some 34 mcmd (million cubic metres per day) of liquid gas comes in through the Dahej gas import terminal operated by Petronet. About six mcmd of this gas is used for generating power.

Both NTPC and GAIL have suggested amending the notification on the customs duty waiver to allow LNG used for power generation to avail of the exemption, irrespective of the importer. The matter is being taken up with the finance ministry.

Source - Times Of India

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