Ministry push for infra status for oil pipelines

The petroleum ministry has called for "infrastructure status" to be given to pipelines transporting crude oil and petroleum products across the country in its list of demands for the upcoming budget.

The demand comes after the finance ministry gave cross-country natural gas pipelines such a status, which would exempt companies operating the pipelines from paying income tax for 10 years.

"We have renewed our call for granting infrastructure status to crude-oil and petroleum product pipelines, as we want to incentivise companies to set up pipelines on a common-carrier principle," said a senior official in the petroleum ministry.

Analysts say that the primary reason why crude oil and product pipelines have not yet be given infrastructure status was because most pipelines were being built on a captive basis.

Natural gas pipelines are laid on a common-carrier principle which allow companies, other than the owner of the pipeline, to book capacity on the pipeline, thus making them "national assets".

"Giving infrastructure status to oil pipelines will give some incentives that might see a resurgence of oil pipelines on a common-carrier basis," said Kumar Manish, associate director, KPMG, a global consultancy firm.

The government had set up a company called Petronet India Ltd, promoted by Indian Oil Corporation (IOC), Hindustan Petroleum (HPCL) and Bharat petroleum (BPCL), for laying crude oil and product pipelines on a common-carrier principle.

The company has various arms which operate single pipelines. These arms are joint ventures between Petronet India and other oil companies which have direct operations and markets along the pipeline's route.

The experiment has proved to be a non-starter with Petronet India selling stake in its arms to its joint venture partners, as operations were not profitable.

For example, BPCL is buying out Petronet India from Petronet CCK, a joint venture between the two companies and Kochi Refinery, a BPCL company. This will make the 292 km of product pipeline a captive one for BPCL.

The ministry has also said that oil and natural gas exploration companies should be exempted from paying service tax, which the finance ministry fixed at 12 per cent in the last budget.

The oil companies have also been lobbying for exemption from service tax, arguing that their business was fraught with risk.

The revenue department, attached to the finance ministry, on the other hand, believes that the oil exploration companies can afford to pay service tax since norms under the New Exploration Licensing Policy (Nelp) allow the petroleum ministry to refund any tax the companies paid, an industry watcher said.

Declared goods status for gas
The oil ministry has also proposed that natural gas, liquefied natural gas (LNG) and biofuels such as ethanol and biodiesel should get declared goods status that would limit sales tax on the commodities in all status to not more than 4 per cent.

At present, natural gas and LNG attract different rates of sales tax and is as high as 20 per cent in some states. On the other hand, other fuels such as coal and crude oil, with which gas competes as a fuel, already enjoy the declared goods status.

"Gas is fast emerging as the fuel of the future," said an analyst with a global advisory firm. "People are already talking about gas replacing liquid fuels in the future, and its use needs to be incentivised."

Industry chamber, the Federation of Indian Chamber of Commerce and Industry (Ficci) had earlier this year also called for "declared goods status" for natural gas, as high and multi-point sales tax on natural gas was hurting user industries, particularly the fertiliser and power sectors, which use almost 70 per cent of the available gas in the country.