The Power Ministry has reiterated that the proposed waiver of customs duty on LNG would cover all imports,and not just the new cargoes as mandated by a Group of Ministers more than two years ago.
Based on correspondence with the Revenue Department on GoM recommendations,and in view of the prevailing scenario in the natural gas sector,it has been decided that GoM may be approached to consider waiver of customs duty on the entire LNG import and not only on incremental import, said the ministry while forwarding its proposal for the GoM. In July 2006,the GoM had recommended that the proposal for customs duty waiver be considered only for cargoes beyond the LNG being imported at this juncture. It had asked the Revenue Department and Power Ministry to ascertain the revenue impact of such an exemption and seek GoMs consent before seeking a Cabinet approval.
Petronet LNG Ltd and Hazira LNG Ltd would be the biggest beneficiaries of this proposal as PLL has been importing 5 million tonnes of LNG on term basis from Qatar since 2003. PLL has also been picking up spot cargoes,which is the sole means of Hazira LNG. The two picked up more than three million tonnes of spot cargoes last year.
The ministry says that the umbrella exemption was necessary as Petronets special privilege price linked to crude oil price of $20 a barrel for term imports got over last December. From January 2009,the Petronet LNG price would get substantially costlier because of its linkage with crude prices. In order to improve the affordability and competitiveness of Re-gasified LNG based power generation,the entire RLNG (both existing and future) used for power generation should be considered for waiver of customs duty as otherwise it would have a negative impact on use of this fuel for generation, says the note for the GoM. This would also ward off the differential treatment on customs duty for the same category of customers, it adds. The GoM is likely to meet shortly to discuss the proposal that is aimed at resolving the gas shortage faced by power plants in the country.
Coupled with education cess of 3 per cent over and above the customs duty of 5 per cent,the net impact of the exemption would be 5.15 per cent. This would bring down the landed price of LNG cargos by as much as 50 cents per million British thermal unit (at LNG prices of $5-8 per mBtu) and fuel cost of power generation by nearly 20 paise per unit.