The Telegraph
Since 1st March, 1999
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Naik’s plea for LNG duty cut shot down

New Delhi, Nov. 23: Finance minister Jaswant Singh has virtually snubbed petroleum minister Ram Naik in ruling out import tariff concessions for the import of liquefied natural gas (LNG).

Sources say the finance minister has written a curt letter to Naik stating that a change in the import tariff for LNG at this stage is “neither feasible nor desirable”.

The finance minister apparently has taken a rather generalised view of LNG and clubbed it with crude oil and petroleum products. He is reported to have taken the stand that the tariff policy for LNG imports has to be part of an overall policy for import tariffs for crude oil and petroleum products and, therefore, any changes in the policy can be made only when the Union budget is presented.

Sources say Singh has gone a step further and told Naik that he should look for a way to cut the transport cost of natural gas in order to make it available to consumers at a cheaper price. This in effect boils down to cutting the profit margin of Gail (India) Ltd. Singh has said the margin being given to Gail for transporting gas through its pipeline network is too high and there is a need to scale this down.

Senior petroleum ministry officials are of the view that their counterparts in the finance ministry do not understand the complexities of the hydrocarbon sector and, therefore, have not been able to convey the proper picture to the finance minister.

They point out that domestic natural gas is already being provided at a highly concessional price from the ONGC fields and Gail is doing a good job. The company also pays a rich dividend to the government. Any deliberate lowering of the transport costs will adversely impact the revenue of the government and hit Gail's ambitious plans for setting up a national gas grid as well.

LNG consignments from Rasgas of Qatar are expected to start arriving at Petronet's terminal at Dahej in Gujarat from January onwards. Ram Naik has inherited a very tricky problem from his predecessor Vazapathi Ramamurthy who had signed the long-term contract with Rasgas and linked the price of LNG to crude oil.

The landed price of LNG was working out to around $5 per million British thermal units (Btu) for which there were no takers.

Rasgas of Qatar has now agreed to reduce the price of LNG for India provided that there is some “belt-tightening” all around. As a result, Petronet LNG has reduced its projected profit and scaled down the internal rate of return on the project to 12 per cent.

The petroleum ministry had also proposed a cut in government taxes on LNG since it is an infrastructure project and the product is environment friendly as well. However, the finance ministry has refused to play ball.

The petroleum ministry's argument is that since natural gas is used mainly in the power sector which is categorised as infrastructure there is every reason to include natural gas projects which supply the input for power generation as part of infrastructure.

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