LNG fights a losing battle in India as taxes weigh on demand

by | February 22, 2017 7:07 am

A province governed by India’s Prime Minister Narendra Modi for 13 years is impeding his plans to promote clean energy. Modi’s effort to make liquefied natural gas more affordable, by halving its import tax in the government’s annual budget February 1, is being scuttled by the withdrawal of tax benefits by the western Indian state of Gujarat,
through which 90 percent of the LNG used in India passes.

Loss of the state concession has resulted in higher prices for domestic and industrial consumers across the country. It has also sparked criticism from environmental groups, who fear it will hurt the competitiveness of gas and discourage use of the cleaner fuel. India is struggling to follow the US and Europe in giving natural gas a greater role in its energy basket as it battles air pollution.

Levies across the country add about 40 percent to the delivered price of LNG by the time it reaches the end user, according to Prabhat Singh, chief executive officer of Petronet LNG Ltd., the nation’s biggest importer of the superchilled fuel.

“If gas needs a push, we need to soften the taxes,” said B.C. Tripathi, chairman of India’s biggest gas utility GAIL Indian Ltd. Currently, import taxes are levied on LNG but not crude, he said. That along with other levies makes natural gas uncompetitive, and unless there is a level playing field, the required investment in infrastructure won’t be made, according to Tripathi.

The levies encourage some users to opt for cheaper alternatives such as furnace oil that pollute India’s air, said Bhure Lal, chairman of Environment Pollution (Prevention & Control) Authority, a panel of experts advising the federal government on ways to curb pollution.

India’s top court this month asked the government to implement a ban on use of petcoke and furnace oil in the national capital and its surroundings, reacting to recommendations from the EPCA. The environment ministry met
stakeholders Feb. 16 to discuss a nationwide curb on use of dirtier fuels including petcoke.

India and China topped the global list of countries with maximum early deaths due to air pollution in 2015, according to a report released this month by Boston-based Health Effects Institute.

Gujarat, which houses the nation’s biggest LNG import terminals, Petronet LNG’s 15 million ton a year facility in Dahej as well as Shell Gas BV and Total Gaz Electricite Holdings’s 5 million ton  plant, withdrew the tax waiver on
imported fuel consumed outside the province in November.

The withdrawal of the tax credit has resulted in an effective valueadded tax rate of 15 percent from 4 percent earlier, according to Rajeev Kumar Mathur, managing director of Mahanagar Gas Ltd.

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