Headache when buying R-LNG from GAIL

Vol 13, PW 24 (20 May 10) Midstream & Downstream

No one, it seems, is happy buying R-LNG from GAIL because it manages sales taxes levied by state governments so inefficiently.

Several gas customers tell PETROWATCH they buy R-LNG from GAIL reluctantly, and only when none is available from either IndianOil or Bharat Petroleum. IOC and BPCL, it seems, are much better than GAIL at managing sales tax levied by state governments, making their R-LNG cheaper than GAIL’s.

“If you are a retailer in Uttar Pradesh for example,” explains one customer, “IOC and BPCL will transfer custody of the R-LNG directly to you at Dahej itself so you pay sales tax in Gujarat only.” After that, he adds, all you do is sign a gas transmission agreement with GAIL to transport the gas to Uttar Pradesh.

In stark contrast, GAIL prefers to keep ownership of R-LNG at Dahej instead of transferring custody to the customer. The net result is that GAIL pays sales tax twice: first in Gujarat and then in Uttar Pradesh, after transporting gas to the customer, who picks up the bill for both sets of sales tax - in addition to GAIL’s transportation tariffs.

“When gas prices were subsidised it wasn’t a problem,” says an industry analyst. “But now we are dealing with market-priced R-LNG and any saving is important.

” Why, ask gas customers, is GAIL unwilling to change its inefficient tax system Is it because it likes to show large gas revenues in its accounts Whatever the reason, IOC and BPCL always sell their R-LNG quota from Dahej faster than GAIL. As equal shareholders in Petronet-LNG, all three companies share the marketing rights to landed LNG.

GAIL is allocated the largest share of Dahej R-LNG at 60%; IOC a little less at 30%; and BPCL only 10%.

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