Natural gas Industry in India
Key developments
Union Budget
2009-10 highlights and impact analysis for natural gas
·
Extension of tax holiday for natural gas production:
Tax holiday under section 80-IB (9) of the Income Tax Act, which was previously
available only for profits arising from commercial production / refining of
mineral oil, will henceforth be extended to natural gas as well. This tax
benefit will be available to undertakings in respect of profits derived from
the commercial production of mineral oil and natural gas from blocks awarded
under the NELP-VIII round of bidding.
Impact analysis - Tax holiday for natural gas production is expected to
trigger better response in future NELP rounds.
·
Increase in Minimum alternate tax (MAT) rate: MAT rate
has been increased from 10 per cent to 15 per cent. However, the credit period
has been extended from 7 years to 10 years.
Impact analysis - For companies that fall under the purview of MAT, the
increase in rate from 10 per cent to 15 per cent is expected to lead to higher
tax outflows in the initial years.
·
Investment linked direct tax exemption: Businesses to
be incentivised through investment linked tax exemptions as opposed to profit
linked exemptions provided for laying and operating cross country natural gas,
crude or petroleum oil pipeline network for distribution on common carrier
principle. Under this principle, all capital expenditures, apart from
expenditure on land, goodwill and financial instruments will be fully allowable
as deduction.
·
Gas grid: Blueprint to be developed for long distance
gas pipelines leading to the National Gas Grid. This grid will facilitate the
transportation of gas across the length and breadth of the country.
Pricing
RIL moves SC
against Bombay HC's ruling on KG D6 gas pricing
Reliance Industries Ltd (RIL) on July 4, 2009 moved the Supreme Court (SC)
challenging the Bombay High Court (HC) judgment on the gas pricing issue. The
HC on June 15,
2009 had asked RIL to honour a family agreement to supply 28 million
cubic meters per day (mmscmd) of gas from its D6 block of Krishna-Godavari
basin to Reliance Natural Resources Ltd (RNRL) at $2.34 per mmbtu for 17 years.
In its petition, RIL has contended that there is lack of clarity in the HC
judgement on three grounds, namely the quantity, tenure and price of the gas to
be supplied to RNRL.
City gas distribution
Deadline for the
submission of bids for 7 city gas projects extended to July 17, 2009
The Petroleum and Natural Gas Regulatory Board (PNGRB) has extended the
deadline for the submission of bids for 7 city gas projects following poor
response. As part of the ongoing exercise of bidding rounds for new city gas
distribution (CGD) networks across India, PNGRB had initiated the second round
of bidding in February 2009, with the last date for bid submission being June 25, 2009 .
Seven geographical areas (Allahabad, Chandigarh, Ghaziabad, Jhansi,
Rajahmundry, Shadol and Yanam) were put up for bidding and 18 bids were
received within the stipulated time from eight entities. Since only single bids
were received for the CGD projects in Jhansi, Shadol and Yanam, PNRGB has
extended the last date for bid submission by 1 month to July 17, 2009 for the three
cities.
Exploration and production
NELP-VIII likely to
be relaunched post the extension of 80IB tax break to natural gas
A 7-year tax holiday on profits earned from the production and sale of
crude oil has been extended to natural gas in the Budget 2009-10 for blocks be
awarded under NELP-VIII. With the restoration of tax breaks for natural gas,
the government is expected to relaunch the auction of oil and gas blocks and
also extend the last date of bidding. However, the tax holiday is not available
for CBM blocks offered under CBM IV. Previously, the government had launched
NELP-VIII and CBM-IV on April 9, 2009 and bids were to close on August 10, 2009 .
Promotional road shows for 70 blocks offered for bidding under NELP-VIII and 10
CBM blocks were to begin on April 20, 2009 , but the programme was deferred due to ambiguity
over the availability of tax holidays for natural gas production. Under
NELP-VIII, 24 deep-sea blocks, 28 shallow water blocks and 18 onland blocks
have been offered for bidding.
