The Cabinet will soon consider an 'Integrated LNG Policy' aimed at regulating the LNG (liquified natural gas) sector, especially import by ships which is projected to grow substantially over the next few years in the light of the increasing demand-supply gap and the slow progress of several pipeline projects.
At present, import of LNG does not require the government's permission and FDI to the extent of 100 per cent is permitted in the sector right from import, regassification and distribution to marketing. There are no price regulations for LNG or regassified LNG. Till date, the government has cleared around 15 LNG projects around the country, including two projects of Petronet LNG Ltd at Dahej and Kochi.
The policy, besides laying stress on the need to promote the participation of Indian shipping firms in the sector, has provided for several tax benefits such as a 10-year tax holiday for importers and a 22.38 per cent rate of customs duty on capital goods imports for construction of LNG regassification terminals against 52.82 per cent applicable on other industrial units.
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A uniform sales tax of 4 per cent on LNG throughout the country has also been proposed. There is no proposal for regulating the price at which LNG is purchased by the importer, sources told Business Standard. However, rationalisation of taxes will provide some relief to both LNG importers as well as consumers.
The final policy note, which has been sent to the Cabinet secretariat already, has made it mandatory that LNG shipping will be undertaken only by vessels carrying the Indian flag. LNG shipping agreements existing prior to the announcement of the maiden policy will, however, be exempt from this stipulation.
This step is being recommended since the government believes that if Indian companies are not included in the picture now, they may not be in a position to participate in LNG transportation even in the future. It will be mandatory to have Indian shipping companies owning a minimum 26 per cent equity participation during the entire period of the LNG contract.
The non-Indian partner will have to agree to transfer of technology to Indian shipping partners in such a way that five years from registration of the vessels, the LNG tanker owned by the consortium will be managed, maintained and operated by Indian personnel. Also, the Indian shipping partner either on its own or in association with other Indian firms or investors will have 50 per cent equity participation.
The government has also proposed to introduce a tonnage tax of 0-1 per cent on the LNG shipping in place of the existing taxation regime. The rational is if Indian companies owning such vessels and operating elsewhere are provided with tonnage tax as available in other countries, they will be encouraged to participate in LNG transportation in India.
Non-Indian shipping companies will be permitted to join the Indian shipping companies as part of the consortium on the condition that they will hold equity less than the Indian shipping companies throughout the contract period. And when the management of the ships is transferred from the foreign shipping partner, it will be only to the Indian shipping companies and not to the non-shipping companies.
The Ministry of Petroleum and Natural gas which prepared the cabinet note has said that implementing the Policy will help streamline the LNG business and avoid unfair competition in the sector. It will also provide an opportunity for Indian ships to transport LNG to India. The regassification cost will also reduce on implementation of the proposals relating to taxes and duties.