Higher tariffs of LNG, generated power hurting sector, say producers

Last year’s Budget had abolished the 5 per cent Customs duty on liquefied natural gas (LNG) used as fuel by power generation companies such as NTPC and Reliance Power. This decision was expected to benefit the fuel-starved sector.

But one year on , none of the key power players has yet to make use of the benefit. The reason is two-fold: First, power companies do not import the LNG directly and, second, the imported fuel is expensive.

Budget 2012-13 had envisaged full exemption from basic Customs duty for natural gas/LNG imported by a power generation company.

In fact, industry observers had termed it a political decision . Though the power sector has been demanding gas, not many in the sector are buying imported gas, due to the high costs.

The oil and gas industry expected the import duty to kick in for all sectors — a move that would have not only benefited importers, but also consumers such as sponge iron and fertiliser units, besides power producers.

Some in the power sector say that since the imports are done through Petronet LNG or GAIL, it would be best to give them the exemption, especially if they are sourcing the gas for power producers. However, Ashok Khurana, Director-General, Association of Power Producers, points out that this will not help until the basic power tariff structure is reformed and VAT rationalised by granting gas ‘Declared Good’ status.

Electricity generation

There are few or no takers for electricity generated from imported gas as it costs Rs 7-10 a unit as opposed to thermal power (coal based) that costs Rs 3-4.5/unit. With domestic gas output on a steady decline, the dependence on imports is rising. Today, gas consumption is about 175 mmscmd in the country, of which 120 mmscmd is domestically produced and 51-55 mmscmd imported. The share of imported gas in the energy mix is only expected to rise .

Besides, a worry point is the price of this gas. While domestically produced gas is available from $4.2/mmBtu to $5.7/mmBtu, spot LNG comes in only at $15-17/mmBtu, and long-term contracts peg it at around $11.5/mmBtu. Of course, these prices exclude local taxes and levies as well as transmission tariff and marketing margin.

In fact, the power sector has been pitching for a pooled price for domestic and imported gas, and rationalisation of domestic taxes. The industry feels the policy should be reformed so as to give options to absorb pricing of imported fuels such as coal and gas. Both the power sector and the Ministry for Petroleum and Natural Gas have been seeking a ‘Declared Goods’ status for natural gas.


(This article was published on January 19, 2013)
XThese are links to The Hindu Business Line suggested by Outbrain, which may or may not be relevant to the other content on this page. You can read Outbrain's privacy and cookie policy here.