All power stations should get LNG tax breaks

Vol 15, PW 23 (31 May 12) People & Policy

If finance minister Pranab Mukherkee really wants to help India’s power stations he should broaden the 5% import duty cut on LNG unveiled in March in his 2012-13 budget.

Power ministry officials believe all power stations must benefit from the tax break, whether or not they directly import LNG on their own or buy R-LNG from a third party like GSPC, IndianOil, GAIL or BPCL. Mukherjee’s budget only exempted from customs duty any LNG imported for power generation by a power generation company.

Not wise. “Power generation from R-LNG is costly which is why it ranks as lowest priority,” wrote power ministry director thermal Alok to oil ministry joint secretary (marketing) Neeraj Mittal on May 17.

“This results in low electricity generation from R-LNG.” Worse, he adds, power stations cannot afford to directly import LNG on their own or deal with uncertain cargo delivery schedules, often changing with barely an hour’s notice.

Best leave such worries to professional R-LNG marketers like GAIL, Petronet-LNG or Shell and Total. Such companies have a wider view of the LNG market and of gas demand across all sectors including power, fertilisers, CNG and steel.

They can therefore take advantage of wholesale rates and bring in larger quantities to distribute to different kinds of customer. More, power sector consumption of R-LNG is just 10% of the country’s total.

“Individual power companies might not need enough gas to justify importing LNG on their own,” we are told. Remember, LNG is purchased on a ‘shipment’ basis so a company must make sure it can use the entire shipload.

Power producers also do not have the expertise to manage R-LNG off-take from LNG terminal storage tanks.