The Hindu Business Line : Pricing of gas key issue for Kochi LNG terminal

EVEN as the promoters of Petronet LNG Ltd (PLL) are preparing to meet later this month to discuss the Kochi LNG terminal and take a final decision on it, one of the major hurdles that has been holding up the project for so long is understood to be the pricing of the gas to the consumers.

Though the Gas Authority of India Ltd (GAIL), the distributors of the gas, had entered into marketing agreements with a slew of prospective consumers a couple of months ago, there has been no final word as yet on the pricing of the gas, according to official sources.

At a time when the oil and gas prices are going through the roof, it is felt that prospective consumers should be given an idea about the likely price of the gas if the agreements are to be converted into firm commitments. For this, GAIL has to undertake a price sensitivity study and arrive at a price band.

The pricing of the gas will also depend on the Petronet's demand for a reduction in the sales tax on LNG. The State Government has slapped a 28 per cent tax on LNG in the Budget for the current year and the demand is to bring it down to 15 per cent or even below. Though there will be a revenue loss for the Government in the initial years, it will pay rich dividends in the long run, it is pointed out.

The State Government, at the same time, should get the Centre waive customs duty on gas to bring the price further down to the consumers.

If the terminal is included in the proposed Special Economic Zone in Kochi, the infrastructure will enjoy customs duty exemption as per the norms. But the efforts should be to get the duty waived in the domestic tariff area, the sources said.

A survey by the Kerala State Industrial Development Corporation (KSIDC) has been able to identify consumers for nearly 60 per cent of the gas from the terminal within the State itself.

With the proposed pipeline to Coimbatore, there will be enough customers for the gas in that region to fully utilise the capacity of the 2.5-million-tonne terminal.

Further, BPCL has come forward with a proposal for 100 per cent offtake of gas from the terminal, which should eliminate any lingering doubts over the availability of enough consumers, the sources said.