Abolition of 5% duty on LNG imports fools nobody

Vol 15, PW 19 (05 Apr 12) People & Policy

Don’t be fooled by finance minister Pranab Mukherjee’s LNG customs duty cut, announced in his budget for 2012-13.

Mukherjee said he was abolishing the 5% customs duty on natural gas/LNG imports, in his budget to parliament on March 16 (last month). But read Pg.

15 of a circular released by the finance ministry’s revenue department on the same day, and bullet point three (3) clarifies that the exemption applies only to: “natural gas/LNG imported for power generation by a power generation company.” In other words, 5% custom duty is waived only when a power generation company directly imports gas to generate electricity.

Tax experts explain a 5% duty cut on a $10/mmbtu LNG price theoretically brings the price down by 50 cents to $9.5/mmbtu. “But no power company in India directly imports LNG,” exclaims a gas sector source.

“Have you heard of NTPC or any other power company importing a LNG cargo for its power station They buy R-LNG from cargoes imported by other companies at Dahej or Hazira. This duty cut is an eye-wash!” Another gas marketing source adds the only way to benefit from the duty cut is if three or four power producers, each needing 4m cm/d of gas, collaborate and collectively import a LNG cargo.

“A standard 138,000-cubic metre LNG cargo when regassified is equivalent to 80m to 82m cubic metres of R-LNG,” he explains. “Any power company that brings in a cargo at Hazira or Dahej on its own will need 20 days to evacuate the cargo if it draws 4m cm/d.

It is not possible.” Observers doubt power generation companies can even sell electricity generated using expensive R-LNG, as average DES (delivered ex-ship) spot LNG prices trade at around $14/mmbtu plus regasification, transportation and other charges.