Gas, given this system’s evolutionary nature and its competitiveness, needs special attention. This govt. in its vision statement last year has recognised natural gas as the preferred fuel of the future. It recognises the need for natural gas transported via both pipelines and LNG tankers. We need to analyse whether the present legislative and regulatory framework delivers the desired results i.e. delivery of natural gas as the competitive fuel for the power sector in India. The vision statement does talk about medium and long term measures which are indeed noble in intent but need to be translated into reality by implementation. These measures include the seriousness about allowing a level playing field for various gas suppliers and the rationalisation of duties and tariffs.
At the time of import, customs duty is loaded in the CIF value of the fuel. CIF value is typically FOB, insurance and freight. Since purchases are on FOB, there is a mechanism to add the rest to evaluate CIF value on which the custom duty is levied. It ranges from 10-30%. This is compounded for the energy gas business with significant sales tax, as in Gujarat where most of the LNG terminals are being placed. At the beginning of the chain there is the development and production of fuel in the resource country. This culminates for LNG in the development of liquefaction facilities at the export terminals at the resource end itself. LNG as a commodity requires cryogenic tankers for shipment, followed by LNG unloading and storage facility at the market location, followed by re-gasification and pipeline grid to the burner tip. Whichever the fuel, energy component in the fuel chain requires significant capital outlay and its development requires coexistence of all other components simultaneously combined with the customers’ facilities.
Indian fiscal and regulatory framework directly impacts the chain right from shipping, all the way to the customer and beyond. This includes custom duty at the time of importation. Excise duty is added as a countervailing duty. There is Sales tax on the subsequent sale in the country and finally there is corporate income tax on the operating entities in India. The entire chain is inter-dependent. Indian fiscal and regulatory framework has a tremendous bearing on the entire chain and its sustenance. While different ministries and departments of govt of India continue to evaluate and legislate different laws specific to their business which falls under their administrative control, there needs to be an overall understanding of the impact of every component in this chain. Hence, an isolated approach whether by power ministry, shipping or petroleum could yield detrimental impact on the business. It is important that there is an integrated policy, which addresses all these segments including the fiscal measures that need to be implemented. Specific to the power sector, govt. has historically