Petroleum and Natural Gas Regulatory Board bats for bringing natural gas under GST
NEW DELHI: Inclusion of natural gas in the goods and services tax regime, pipeline tariff reform and pricing freedom for all domestic gas would be necessary to make the proposed gas trading hub a success, the chief of Petroleum and Natural Gas Regulatory Board has said.
India is aiming to build a gas trading hub to help develop the domestic gas market, and the downstream regulator, PNGRB, is working out regulations for the proposed hub.
“There will be so much confusion in trading gas on hub without GST. People will withdraw. It will not be a happy situation,” PNGRB chairman Dinesh Kumar Sarraf told ET.
This is because tax rates on natural gas vary from state to state and it would be hard for buyers and sellers entering physical contracts on the exchange to juggle multiple rates, he said. A single predictable tax rate would make it much easier for the market, Sarraf said.
Natural gas, crude oil, jet fuel, petrol and diesel were not included in GST when it was rolled out two years ago as states, heavily dependent on petroleum taxes, resisted it. Oil companies, however, have been demanding their inclusion, beginning with natural gas, as it would help them get input tax credit.
Reforming pipeline tariff regime is equally important and it, along with tax reform, should precede a gas hub, Sarraf said.
PNGRB is considering new transmission tariff model that would let the tariff fixed separately for each entry and exit point of the pipeline, a shift from the current distance-based pricing.
Another key reform needed is pricing freedom for all domestic gas as it would make available more gas for trading at the hub and lead to efficient allocation of gas in the market, Sarraf said.
“The government has no business to decide prices,” he said, adding that the current low global gas prices provide the right opportunity to reform as the effect on local prices would be minimal today.
Free pricing can raise cost for gas consumers such as fertiliser and power plants and those using gas in their kitchen and vehicles — the so-called priority consumers who get cheaper domestic gas. Higher prices for fertiliser, a subsidised commodity, can inflate government’s subsidy bill.
Sarraf, though, said the move would benefit the government. “Fertiliser subsidy would rise, but the government would gain overall from higher prices as its realisation from taxes, royalty, dividend, dividend distribution tax and profit petroleum would also go up,” he said, adding that the government can use direct cash transfer to subsidise farmers for fertilizer. Pricing effect on power consumers would be minimal, he said.
Higher prices would also encourage explorers to quickly put to production all gas discoveries, he said, adding that the pricing reform can raise the value of government’s stake in ONGC by 30-40% since it would boost investor confidence.
India currently imports about half of the gas it consumes. The government plans to raise the share of gas in India’s primary energy mix to 15% by 2030 from 6% now. Natural gas pipelines are set to expand to 28,000 km by 2023-end from the current 16,000 km, and the capacity of liquefied natural gas (LNG) import terminals are planned to double to 55 million tonnes per annum in three years.
Infrastructure expansion and optimal regulations are considered necessary for the evolution of the domestic gas market.
The Economic Times 05-11-19