Other problems block NTPC contract with Reliance

Vol 9, PW 8 (28 Jul 05) Midstream & Downstream

Other hurdles are also blocking Reliances gas sales agreement with NTPC.

A well-placed source speaks of three unresolved and critical issues. Most important is payment of a service tax for gas supplied by pipeline to the two NTPC power plants at Kawas and Gandhar.

In his last budget speech, finance minister Palaniappan Chidambaram brought the transport of products by pipelines, including gas, within the service tax net, a move that directly impacts the Reliance deal with NTPC. Any transport of gas by pipelines now attracts a 10.2% service tax.

NTPC wants Reliance, as the transporter of gas to Kawas and Gandhar, to pay this service tax. Reliance refuses, saying NTPC should pay.

Reliance argues that across the country the end consumer pays the service tax as the beneficiary of the service and that Kawas and Gandhar cannot be an exception. It seems NTPC is aware of this but wants Reliance to pay at least for the first year.

Reliance is unwilling because it does not want to set a precedent. Reliance wants the contract to clearly absolve it of any such tax that the government might impose in the future.

Another pending issue is NTPCs insistence that Reliance should seek its permission before committing gas reserves from KG-DWN-98/2 to any other buyer. NTPCs main concern is that its gas supplies might be affected if Reliance commits supplies elsewhere.

This is not a big issue, we are told. NTPC knows that Reliance must show other contracts to attract funds for development of subsequent phases at the block.

The third pending issue is Reliances condition that NTPC should use the gas only for power generation. Gas is not available at this price to many customers, we learn.

Reliance doesnt want NTPC to re-sell this gas and make a huge profit. (Back)

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