Home > Industry > Energy > Bringing natural gas under GST crucial for national grid, gas trading hub

Mumbai: Bringing natural gas under the ambit of goods and services tax (GST) will not only make transport of the fuel across the country more efficient but also facilitate setting up of the much discussed domestic gas trading hub, said industry players and analysts.

Finance minister Nirmala Sitharaman on Saturday announced plans for expansion of the National Gas Grid to 27,000 km from the present 16,200 km and said that to deepen gas markets in India, more pricing reforms will be undertaken.

"For free movement of natural gas, be it a gas grid or trading hub, GST is essential. Pipelines reaching more areas is positive and more and more consumers will at least be closer to the gas. However, if they shift to using gas as a fuel for their industrial units, it will depend on the economics of fuel," said a chief executive of a gas company on the condition of anonymity. "A gas trading hub can aid people buying the gas directly and sell it directly. Today gas is locked up in contracts and a trading hub will be a kind of a spot market, which will be good."

The government has been discussing the idea of a gas trading hub for nearly two years now. While a trading hub would facilitate availability of gas, the grid would help connect gas sources to consumption hubs which is key to government's plans to increase the share of natural gas in India's energy basket to 15% over the next decade from 6.2% now.

India's downstream oil and gas regulator, the Petroleum and Natural Gas Regulatory Board (PNGRB), had in May 2018 appointed Crisil Infrastructure Advisory Services as a consultant to prepare regulations for the planned gas trading hub.

"Gas trading hub should be positive for the upstream oil companies, as it will enable them to achieve higher price levels than the one prevailing currently, which are based on certain formula linked to global prices," said K. Ravichandran, senior vice president & group head, corporate ratings, ICRA Ltd.

Currently, price of domestically produced natural gas is fixed by a formula that averages out rates in gas surplus nations such as Russia and the US.

The idea of a natural gas trading platform is to create an ecosystem where competing buyers would be able to buy gas from competing sellers and transport the same from the source to the place of their requirement by getting a non-discriminatory access to the pipeline capacity.

"Unless you have a clear bifurcation that the facility owner is not marketing the gas, this framework would be only in theory. There needs to be a transparent mechanism in place for gas customer," said the CEO quoted above.

India, along with China, is expected to be a significant driver of demand for natural gas. Being the biggest emitter of greenhouse gases after the US and China, India aims to achieve emission reduction targets pledged at the 21st session of the Conference of the Parties (CoP) in Paris by promoting the use of natural gas and green fuel.

Currently, gas pipelines in India are concentrated in the western and northern part of the country.

Last month, as part of its focus on India's northeast, the Centre provide 5,559 crore for the construction of the North East Gas Grid project across Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, and Tripura.

The Cabinet Committee on Economic Affairs had approved the project of Indradhanush Gas Grid Limited “with viability Gap Funding/Capital Grant at 60% of the estimated cost of 9,265 crore (including interest during construction)."

On 23 January, the Ministry of Petroleum and Natural Gas had released a draft city gas distribution policy that may be adopted by states to facilitate speedy implementation of city gas distribution (CGD) networks and value-added services. Reduced road taxes, value-added tax (VAT) may also be in the offing for gas-driven vehicles.

"In order to provide user-friendly clean and green fuel CNG and PNG to the general public at affordable and reasonable rates, the Value Added Tax (VAT) rates may be reviewed and rationalized to a uniform VAT rate with a ceiling of 5% and to promote faster investment in the CGD sector and development of Gas Based Economy," the draft policy had said.

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