Customs duty on LNG for power sector to go

The Government has decided to remove Customs duty on LNG when it is used as a fuel for the power sector. At present, there is a 5% duty on LNG. The present waiver is applicable to LNG imports by power projects which have a capacity of 2,000 mw or more, defunct projects which have been restructured and revived though a special purpose vehicle and projects which supply power to state electricity boards under a power purchase agreement.

Earlier, the government had given this exemption to the Dabhol power plant. The present notification expands the ambit of the exemption to include a larger list of power plants. At present, gas-based power generation capacity accounts for 12,700 mw. Due to gas shortages, these plants are operating at a plant load factor less than 60% ? as a result 5,000 mw of gas turbine capacity is stranded for want of gas.

Gas shortage resulted in a loss of 24 billion units of power in 2005-06, pushing down the rate of growth of power generation from 8% to 5.1%. The shortage of gas supplies and the rising demand for electricity has meant that gasbased station use expensive fuels like naphtha to tide over peak demand.

In the current fiscal, 2006-07, the power sector will require at least 119 mmscd of gas, domestic sources provide for nearly 91 mmscd. The cost of fuel for coal fired stations ranges from 70 paise per kwh to 110 paise per kwh, while that for gas based plants varies from 105 paise per kwh to 200 paise per kwh.

Trade Winds

? At present, the duty stands at 5% on LNG

? Waiver applies to LNG imports by power projects with capacity of 2,000 mw or more

? Notification expands ambit of exemption to include larger list of power plants

Source: The Economic Times, New Delhi,September 1, 2006
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