The government's move to impose an excise duty on Liquefied Natural Gas (LNG) will make the fuel uneconomical for power generation.
LNG is one of the cheapest fuels for power generation. The cost of power generated by LNG-based projects is comparable to that of coal-based projects.
Several companies, including international oil and gas major Enron, are lobbying with the Union government against the imposition of excise duty.
At present, LNG is imported in liquid form and converted into the gaseous form. As this process is classified as a production/manufacturing process, the Centre will be imposing an excise duty which will increase the price of gas to be used for power generation.
Enron International chief executive Joe Sutton said his company is talking to the Union government on this issue.
"We are willing to bear whatever duties imposed, but it is finally up to the government whether or not to impose such duties if LNG is to be a viable fuel for power generation," he said. He added that "we are in touch in the concerned ministries on this matter."
An excise duty on LNG, in the range of 10-12 per cent, will make the fuel an uneconomical option for power generation. Industry sources pointed out that "cost of LNG-based power generation is lower than that of imported coal-based projects if excise duties are not imposed."
Promoters of liquid fuel-based power projects who are initially using fuels such as naphtha for power generation have already expressed their intention to switch over to LNG once it is available in the country. Some promoters said even though this move would bring down the cost of power, as naphtha is more expensive than LNG (with excise duties included), but is not desirable as it only increases the cost to the consumer.
At present, a number of domestic companies, as well as international majors, is getting necessary approvals for setting up LNG terminals in the country.
Companies like Shell, British Petroleum, Enron and BHP are in the race to set up LNG terminals in the country, while domestic companies like Ispat and Reliance have already expressed their interest in this area.
Ispat has already got approval to set up an LNG terminal in Andhra Pradesh (Krishnapatnam), while the formation of a joint venture which will undertake the import and sale of LNG is currently under discussion between public and private companies.
