Tax hurdle for IOC plans to hire Ennore LNG tank

Vol 22, PW 18 (27 Jun 19) Midstream & Downstream

IndianOil's plan to lease out a single LNG storage tank at Ennore to prevent its terminal becoming 'stranded' like the Kochi terminal is likely to face a major challenge over customs duty.

IOC invited offers on June 10 from companies interested in leasing a 182,000-cubic metre LNG tank commissioned in March 2019, giving rise to comparisons between Ennore and the stranded Petronet-LNG terminal at Kochi where one of the tanks has been leased to Dutch trader Trafigura. "There is a basic difference between Kochi and Ennore," explains a senior industry source.

"Ennore is not in a SEZ (Special Economic Zone complete with accompanying tax benefits) unlike Kochi which is located at Puthuvypeen Island, a designated SEZ area." He adds LNG can land at Kochi to be stored for a specified period and then re-loaded without any tax headache with the customs department or any question of paying 2.5% customs duty.

But the Ennore terminal is located at Kamarajar Port, which is not in an SEZ. "Who will bear the customs duty?" asks an industry source.

"Getting a refund from the customs department (once LNG is reloaded) will not be easy." Some fear the 2.5% customs duty might discourage price-conscious storage customers.

An IOC source would not confirm what rent it is seeking for its tank but across the coast, Petronet-LNG reportedly earns $750,000/year plus $30,000 for every discharge and reload by Trafigura at Kochi.