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LNG awaits core sector status

Mumbai, April 5: The government is set to approve a long-standing demand of granting infrastructure status to liquefied natural gas (LNG). It is also expected to announce other incentives that include giving LNG a declared goods status. This is expected to pave the way for a reduction in the sales tax on LNG from the high levels of around 22 per cent in some states to 4 per cent. A reduction in basic customs duty rates for LNG projects is also in the offing.

“This has been a long standing of ours. Bestowing infrastructure status means that we will be exempt from paying taxes for a period of 10 years and interest income will be exempt from tax,” sources pointed out.

Petronet LNG, promoted by Oil and Natural Gas Corporation (ONGC), Indian Oil Corporation (IOC), Gail Ltd and Bharat Petroleum Corporation to set up LNG terminals in the country, will significantly benefit with the grant of infrastructure status to LNG.

Reports indicate that Qatar-based RasGas has indicated its willingness to renegotiate the price at which it intends to sell LNG to Petronet LNG if the government bestows various fiscal benefits to LNG projects.

Though it is believed that imports in the form of LNG will be one of the options to bridge the current and projected demand-supply gap, sources point out that the delay of the government in announcing an integrated LNG policy is being seen as a major hurdle.

Though the fiscal incentives contemplated by the government are welcomed, the proposed introduction of value added tax could complicate matters, they added. Petronet LNG is setting up a regassification facility at Dahej in Gujarat and LNG is likely to be available from January 2004. Shell is also setting up a facility at Hazira.

Over the next few years, LNG terminals are likely to come up in Kakinada, Kochi and Pipavav in addition to the revival of the Enron LNG terminal at Dabhol.

Industry observers note that with LNG suppliers focussing on those markets that are not only lucrative, but offer little regulatory uncertainties, the pressure on the government to come up with an integrated LNG policy is necessary. Recently, the US had altered their stand on open access of LNG terminals that enabled parties to build and operate terminals for own use.

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