LNG duty cuts to lessen power cost burden

Import duties and domestic levies on liquefied natural gas are set to be cut so as to reduce power shortages and boost generation.

While import duty is to be reduced to nil from the present five per cent, there is also a proposal to accord "declared goods" status to natural gas. This will result in states levying an uniform 4 per cent duty on gas.

At present, states levy an average duty of between five to 15 per cent on it. This move will benefit Ratnagiri Gas and Power Ltd's Dabhol project.

Under the Central Sales Tax Act 1956, whenever an item is included in the declared goods list, states are required to bring down the tax on it to four per cent.

A proposal to this effect is scheduled to be considered by the Union Cabinet this Thursday. The cuts will only be applicable for supplies made to gas-based power generation plants and are likely to provide the much-needed impetus to generation by reducing fuel cost.

The proposal has been prepared by the power ministry and is part of the government's efforts to tide over the gas crisis being faced by generation plants in the country.

"The waiver of Customs duty will lead to enhanced supplies and in turn, allow power generation plants to reach their full production capacity," government sources told Business Standard.

Of the total power generation capacity of 1,25,000 Mw in the country, gas-based power plants have an installed capacity of 12,600 Mw, with many operating at reduced capacity.

India has a demand of around 120 million metric standard cubic meter per day (mmscmd) of natural gas as compared to a supply of around 66 mmscmd.

The share of natural gas in India's energy basket is only around 8.9 per cent, as compared to the world average of around 24 per cent. At present the spot market price of LNG is between $8 to $10 per mmbtu.

The power and fertiliser sectors constitute around 70 per cent of the natural gas demand in the country. The National Thermal Power Corporation Ltd (NTPC) has seven power generation plants fuelled by gas or liquid fuel with a commissioned capacity of 3,955 Mw.

Gas plants commissioned through the joint venture route have a capacity of 314 Mw. The company has an additional requirement of four million cubic meters per day (mmcmd) of liquefied natural gas to overcome the present gas shortage for its power plants.