Ahmedabad levies tax on Adani gas pipelines

Vol 15, PW 8 (20 Oct 11) Midstream & Downstream

Alarm bells are ringing for gas retailers across India after the Ahmedabad Municipal Corporation (AMC) decision to impose a ‘property tax’ on underground gas pipelines.

PETROWATCH learns the AMC issued a legal notice to Adani Gas in September demanding payment of Rs12.61cr ($2.57m) as five years arrears in property tax for the company’s gas pipelines. It’s the first such move in India and if successful could set a precedent for other cash-strapped municipal bodies looking to bolster revenue.

Adani began laying gas pipelines in the city in 2005 and has laid 475-km of pipeline in total till date. “Every year we add up to 150-km of pipeline,” says a company source.

But Adani probably never expected to be asked to pay annual property tax for these pipelines in addition to the Rs3.75/metre/year ($0.07) it already pays for land ‘rental’. For 2011-12, Adani is being asked to pay Rs2.71cr ($553,000) as property tax, based on real estate prices in different areas through which the pipelines pass.

Broadly the rate ranges from Rs40/metre/year ($0.81) to Rs70/metre/year ($1.42). “If we lay a 10-metre pipeline to connect a household in an area where the property tax is Rs 40,” explains Adani, “property tax for that stretch is Rs400/year ($8.10).

” Adani plans to pass on the tax to end-consumers like households and businesses but most factories will be spared, as they are usually located outside the city limits. Adani won’t be contesting the property tax but studying the “legal implications of the ‘demand notice,’” we hear.

When contacted, an AMC source said: “Under the law it is the ‘occupier’ not the owner who must pay property tax so it’s Adani’s responsibility to pay, not ours.” AMC’s taxation department says it obtained legal advice before issuing the notice.