New Delhi, February 1, 2017

In a bid to promote gas-based economy, Finance Minister Arun Jaitley today halved the import duty on liquefied natural gas (LNG) to 2.5 per cent, a move that will help cut cost of power and fertiliser production. “Considering the wide range of use of LNG as fuel as well as feed stock for petro-chemicals sector, I propose to reduce the basic customs duty on LNG from 5 per cent to 2.5 per cent,” he said presenting the Budget for 2017-18 in Lok Sabha.

The move will result in cheaper import of fuel, which makes up for roughly 40 per cent of the gas consumed in the country, resulting in lower cost of power generation, urea and petrochemical production. Oil Minister Dharmendra Pradhan said the move is in line with the vision of the government to make India a gas-based economy by cutting reliance on polluting liquid fuels and increasing use of cleaner fuel.

Essar Oil MD and CEO Lalit Kumar Gupta said: “The reduction in LNG duty is welcome as it will reduce the cost of energy in the system.” Manish Aggarwal, Partner and Head of Energy and Natural Resources, KPMG in India said halving of basic customs duty on LNG would support stranded gas power plants. “It would also encourage mid-stream infrastructure creation from LNG terminals to gas pipelines and city gas distribution networks.”

Gokul Chaudhri, Leader, Direct Tax, BMR & Associates LLP said the lowering of custom duty on LNG will help the natural gas industry and their user industries like power. K Ravichandran, Group Head, Corporate Sector Ratings, ICRA, said the reduction in basic customs duty on LNG is a welcome move which will make LNG more affordable to end users in industrial categories such as ceramics, glass, chemicals besides large consumers such as power and fertiliser sectors.

“This is credit positive for existing regassification terminal owners such as Petronet LNG Ltd, GAIL and Shell India, besides new projects being set up. “Moreover, it will help gas marketers and city gas distribution (CGD) companies such as Indraprastha Gas Ltd, Mahanagar Gas Ltd and Gujarat Gas,” he said.

However, Raju Kumar, Tax Partner – Oil and Gas, EY, said it appears that oil and gas sector once again has not got the necessary impetus in Budget. “Finance Minister noted the potential risk of rise in oil prices which could impact the fiscal deficit adversely given significant import dependence of our country. There seems to be an effort towards promoting gas as an alternative source of energy by reducing the customs duty on the import of LNG from 5 per cent to 2.5 per cent,” he said.

[The Financial Express]