USE OF NATURAL GAS FOR

POWER GENERATION

IMPACT OF CHANGES IN VARIOUS TAXATION

PARAMETERS ON GAS PRICE.

T.K.CHATTERJEE (GM-NTPC)
 INDIAN POWER SECTOR:
PRESENT GENERATION CAPACITY MIX

60.00%

50.00%

40.00%

30.00%
Series1

20.00%

10.00%

0.00%
Hydro Coal Oil Gas Nuclear Renewable

Series 1 25.90% 55.60% 0.90% 9.90% 2.70% 5.00%

Govt. Vision: Reliable, Affordable and Sustainable

power for all by 2012 .
 WORLD PRIMARY ENERGY MIX

HYDEL
COAL
37.30%
40.00% OIL
30.00% 26.40% 23.90% GAS

20.00% NUCLEAR

10.00% 6.51% 6.14%

0.00%
HYDEL COAL OIL GAS NUCLEAR
 BENEFITS OF GAS BASED GEN
 Less gestation period of gas based power
station
 clean environment

 Proper energy mix to help improve country's

energy security.
 Improved Efficiency
 RECENT DEVELOPM ENTS
GAS SECTOR
 Energy Security with balanced fuel mix:
Central to GOI agenda.
 National Energy policy: under
consideration
 Increased thrust on Self sufficiency in
Hydrocarbon Sector . NELP and other
policy initiatives, in line with Hydro Carbon
Vision 2025 .
 Petroleum and Natural Gas Regulatory
Board Bill : under active consideration of
GOI
 RECENT DEVELOPM ENTS
GAS SECTOR
 Natural gas pipeline policy: under
consideration
 Tariff commission : To look into gas pricing
and transportation tariff
 Advent of LNG : Dahej and Hazira terminals
already commissioned. Many more on the
anvil
 Transnational pipeline :Iran India, Mayanmar
India, Bangladesh India Pipelines.
 Partial Decontrol of gas pricing by GOI
 Demand is highly price sensitive
GAS REQT. FOR POWER SECTOR BY THE YEAR 2012
PRICE (USD/Mmbtu ) DEMAND (MMSCMD)
 3.0 169.5
 3.5 140.0
 4.0 100.0

FOR GAS TO SHOW A BREAK AWAY GROWTH

GAS PRICES AFFORDABILITY IS THE KEY ISSUE
ELEMENTS OF GAS PRICING
 Basic Price ,
 Custom Duties,
 Royalties,
 Transportation Charge,
 Octroi, Entry tax, surcharge etc
 Service tax on Transportation.
 Sales Tax

NEED FOR INTEGRATED FISCAL AND TAXATION POLICY

ILLUSTRATION OF ELEMENTS
OF APM GAS PRICE
100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

Rajasthan Gujarat
Consumer price Tpt charges Royalty
S. Tax (Inter) Entry tax Service Tax on TPT
Sales tax (Seller to Buyer) Turnover tax, surcharge etc.
 CUSTOM DUTY
Present :
 Applicable on import of Natural Gas through transnational
pipeline : 10%
 Applicable on Import of LNG: 5%
Desired :
It is desired that Custom duty be waived off to make it help in
achieving competitive vis-à-vis other fuel for power
generation
Impact on FCOG:
 Reduction in FCOG on Imported NG by about 8-9%
 Reduction in FCOG on LNG by 3-4%
 SALES TAX/VAT
Present:
 Sales tax/VAT on gas - 4% to 12%, a wide variation across
states.
 May hinder uniform growth of gas based power plant across
states. One of the artificial consideration by investors while
setting up the gas based power plant
Desired
Merits abolition of sales tax and till it is abolished, may be
classified as declared goods to have uniform sales tax/ VAT@
4%.
Impact on FCOG:
Reduction in FCOG by about 4% to 12% depending on
present applicability of Tax.
 OCTROI, ENTRY TAX ETC
Present:
 Some of the states like Rajasthan, U.P., impose Entry Tax
artificially increasing the gas prices
 Likewise some of the states levy turnover tax, surcharge etc
hindering uniformity of gas sector development
Desired:
Uniformity desired. States should consider not to impose these
taxes/duties for the sake of uniform unhindered development
of gas sector growth across the country.

Impact on FCOG:
Reduction in FCOG in states like UP would be by about 4%
 TRANSPORTATION CHARGE
Present:
 Different Transportation models Prevalent in the country.
 Non-uniform tariff along HVJ pipeline by Transporter for NG
 Postal tariff @1150/MCM for Natural gas
 For RLNG (Rs 500/MCM within Gujarat, Rs 540/MCM outside
Gujarat upto Vijaipur, & Rs 640/MCM beyond Vijaipur)
 Distance based by GSPL

Desired:
 Fix transportation Tariff on cost plus reasonable returtn
basis .
 Need for Introduction of Common carrier/ Contract carrier
concept
 Open Access on Non Discriminatory basis
 Regulator to Overssee the sector
 Foster growth by opening up the sector .
 SERVICE TAX ON
TRANSPORTATION
PRESENT:
10% on transportation charge.

DESIRED:
Impopsiton of Service tax be withdrawn

Impact on FCOG:
Reduction in FCOG by about 1-2.5% depending
upon actual cost of gas and the transportation charge.
 OVERALL IMPACT
 Exemption/rationalisation in duties, taxes, levies along
with transportation cost (excluding royalty) as above
would result into a substantial reduction in landed
price of gas( say about15%to 35%)
 This would go a long way in making it competitive
vis-à-vis other available fuel for power generation
 The revenue loss by way of reduction in taxes etc. may
be made good through increase in income from
increased economic activity

 TAXATION POLICY SHOULD ALIGN WITH

GOI POLICY OF FOSTERING NATURAL GAS
USE.
 GOVT. SUPPORT SOLICITED FOR
INTEGRATED FISCAL AND TAXATION
POLICY: WAY FORWARD
 To implement a comprehensive reform of the fiscal regime for
natural gas/LNG in line with GOI’s plan to increase share of
Gas based power generation, and to reflect its environmental
benefits through tax incentives/low level of tax in gas/LNG
chain.
 Fiscal regime for natural gas should lower the overall burden
of taxation on gas supply chain in order to promote growth of
gas relative to other fuels (especially coal) in power sector
 Sales tax/VAT should be set at zero or at a nominal level
reflecting the lower emissions from gas.
 Till this is achieved, natural gas/RLNG may be classified as
declared goods to have uniform level of taxation across the
states in line with the CST @4% on coal.
 GOVT. SUPPORT SOLICITED TAXATION
POLICY: (CONTD.)
 To consider removing the custom duty on imports of LNG,
Transnational natural gas and equipment & materials used in
NG/LNG value chain, which significantly raise the cost of
building regas terminal, transmission lines and local
distribution networks.
 Boost investments into all parts of the gas/LNG chain, by
exempting gas-related investment from taxation.
 Provide incentive to use gas for power generation
 Provide tax holiday for all projects in gas/LNG chain
including LNG import and regas facility.
 Ensure price affordability, reliability and competitiveness with
other fuels for power generation by way of fiscal and tax
reforms.
THANK YOU