New Delhi: The newly formed Union cabinet is expected to decide shortly on the vexed issue of a tax holiday for natural gas production, which is key to attracting overseas bidders to India’s biggest auction ever of 70 oil and gas blocks.
Lack of clarity on the issue prompted the government to defer roadshows that were to start in April to drum up investor interest in the auction, the eighth round of the so-called New Exploration Licensing Policy, or Nelp.
Firms engaged in oil and gas production were eligible earlier for an income-tax holiday for seven consecutive years. This was changed in the Union budget of 2008-09, when the finance ministry issued a clarification stating that the tax holiday was only for crude oil production and not natural gas.
“We expect the decision to be taken by the cabinet shortly. We have answered all the queries raised by the finance ministry and were waiting for the new government to take charge to resolve the issue. The issue will be addressed in the cabinet shortly and not necessarily in the Union budget,” a top petroleum and natural gas ministry official, who did not want to be named, told Mint.
Nelp was approved by the government in 1997 and launched in January 1999 to boost oil and gas exploration in the country. Under this, the government allocates the rights to explore blocks of hydrocarbons through a bidding process.
Finance ministry officials dealing with the issue could not be immediately contacted.
“We are ready with all our preparations for the roadshows. All we need (is) a decision to go ahead once the new minister assumes charge after the clarification is issued,” said another petroleum ministry official, who also did not want to be named.
The overseas roadshows were to be held in Washington (11-12 May) and Houston (7-8 May) in the US, Perth (27-28 April) and Brisbane (29 April) in Australia, London (4-5 May) in the UK and Calgary (14-15 May) in Canada.
“We are expecting enough participation from major global explorers. However, given the economic downturn, if we do not receive adequate response, nothing binds us from deferring the process again. If there is no adequate interest, blocks will not be allocated,” the first petroleum ministry official said.
The government has so far awarded 203 exploration blocks, besides 26 blocks of coal bed methane (CBM), a form of natural gas extracted from coal beds and used as fuel in several industries such as power generation, fertilizers and ceramics. There is a 10 August deadline for explorers to submit bids, both for the hydrocarbon blocks and for 10 blocks of CBM.
“It is useless having different taxation policies for oil and gas. Degrees of risk for both oil and gas exploration are similar,” said Monish Chatrath, partner, national management, Grant Thornton India.
“There is a need for the government to ensure that no preferential treatment is given to either crude oil production or gas as one needs to encourage foreign investment in the sector and any differentiation will discourage investment. We are not in a stage today to make these differentiations with respect to tax benefits,” he added.
Murli Deora, who was petroleum minister in the previous government, said earlier that several potential bidders had expressed concerns on the lack of a tax holiday for natural gas production similar to that given for crude oil production.
“We could not have got the issue sorted out just now because of elections. So we decided that let the issue be dealt (with) by the new government,” he had said.