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Petronet LNG lobbies for change in SEZ rules on power projects

Petronet LNG lobbies for change in SEZ rules on power projects
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First Published: Sun, Jan 13 2008. 11 01 PM IST

Updated: Sun, Jan 13 2008. 11 01 PM IST
The public sector liquefied natural gas (LNG) company Petronet LNG Ltd is lobbying the commerce ministry for a special exemption that will allow it and other companies that have LNG terminals to set up power projects in adjacent special economic zones, or SEZs, and sell the power outside such areas without having to pay any additional taxes, a move prompted by its decision to do this at Dahej.
Petronet, the country’s largest LNG receiving and regasification company, already has a terminal at Dahej and is working on setting up one at Kochi. It has also been considering expanding into power as part of a forward integration strategy and in an effort to effectively manage its inventory of gas.
However, the company cannot set up a power project in Dahej because all land adjacent to the terminal has been declared an SEZ. And under existing rules, surplus power generated in an SEZ developer’s power plant “may be transferred to domestic tariff area on payment of duty on consumables and raw materials used for generation of power.” Extra taxes are charged because firms operating within the SEZ are eligible for a range of fiscal and other incentives.
Petronet also wants the ministry to make it mandatory for SEZ developers to provide space to companies such as itself that have or are setting up LNG terminals adjacent to the SEZ.
Gujarat Industrial Development Corporation, or GIDC, has already rejected the request of Petronet for land to set up the power plant on the grounds that it is within the Dahej SEZ, which has already been notified by the ministry of commerce—this means that companies setting up operations at the SEZ will be eligible for fiscal and other incentives.
Dahej SEZ Ltd is a joint venture of Oil and Natural Gas Corp. Ltd (ONGC) and GIDC.
“We have written to the commerce ministry and are awaiting a response from them on the same,” said a senior executive of Petronet, who did not wish to be identified.
“The decision on this proposal is yet to be taken,” said a government official, who did not wish to be identified.
India is deficient in gas and meets its demands through imports.
Gas is imported in liquid form to address issues related to ease of transportation and safety. This gas has to be “received” and “regasified”, or converted back into gas. Petronet’s LNG facility at Dahej has the capacity to handle 5mtpa (million tonne per annum) of LNG, but it is limited in its ability to store the gas.
By setting up the power project and incorporating it under the same corporate entity as that of the terminal, Petronet will be able to save at least $1 (Rs39.30) per million British thermal units (mBtu), as gas supplied to the power plant would be deemed as captive consumption and not attract a 12.5% value added tax. In addition, the adjacent location of the power plant will also reduce gas transmission cost and marketing margin by an additional $0.80 per mBtu.
Energy factor: Petronet LNG’s Dahej facilities. The company is working on setting up another terminal at Kochi.
Petronet believes that it can leverage such synergies to produce power at a cost of Rs2.75-3 per unit, around 50% cheaper than the average cost of gas-based power.
To start with, it proposes to set up a 1,200MW power project at its Dahej LNG terminal where it is expanding capacity to 12.5mtpa in three years. It also plans to set up its second 1,000MW gas-based power project at its Kochi LNG terminal as reported by Mint on 14 November.
“The SEZ legislation says there is no embargo on setting up a captive power project for the SEZ. However, the capacity of the power project will be regulated by the Board of Approval (BoA). While BoA accords approval for the utilization mainly for the zone, sale of surplus power is permitted subject to payment of applicable duties,” Rajiv Chugh, a partner at accounting firm Ernst and Young, said.
BoA is a government body that governs SEZs.
India has only two LNG regasification terminals and both are in Gujarat. One is owned by Petronet and the other by Shell India Pvt. Ltd (capacity of 2.5mtpa). Other terminals planned include one attached to the Dabhol project (5mtpa), and one each in Kochi (5mtpa) and Mangalore (5mtpa).
“We want the policy to be revisited vis-a-vis such SEZs, where LNG receiving terminals are either existing or are likely to be constructed,” the Petronet executive said.
Sanjiv Shankaran contributed to this story.
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First Published: Sun, Jan 13 2008. 11 01 PM IST
More Topics: Petronet LNG | SEZ | Dahej | ONGC | GIDC |