Chidambaram will have to give clarity on boost to city gas development networks, feels industry

The oil and gas industry now faces the prospect of declining domestic oil and gas production, lack of interest by international investors and absence of a proper regulatory mechanism that has led to a slowdown in domestic as well as foreign investments in both upstream and downstream projects.

Lack of effective response from international investors to the last few rounds of the New Exploration Licensing Policy (NELP) and continued disputes over the Production Sharing Contracts (PSC) has made it desirable to adopt necessary changes to global players in this sector.

The continued decline in gas production from the Mukesh-Ambani-owned Reliance Industries Limited’s (RIL) KG-D6 has further aggravated the situation among infrastructure sectors across the board. The government has come out with an encouraging policy for putting up LNG (Liquefied Natural Gas) terminals and related infrastructure but that needs to be followed up with policy incentives and regulatory measures.

Also, rising fuel subsidies, expected to touch around Rs.1,50,000 crore in 2012-13 are creating further complications for the government.

When Finance Minister P. Chidambaram presents the budget on February 28, he will have to deal with another important issue — of giving a boost to the city gas development (CGD) networks, which have been made to languish on paper in order to reduce thedependence on LPG (Liquefied Petroleum Gas) on the domestic consumption front.

Not only is the industry looking for a push to be given to the CGD networks but also for making available investment-linked tax incentives that have remained neglected in successive budgets.

Mr. Chidambaram would do well to give a clear direction in the case of incentives for the CGD networks to attract investments in this sector, which could give a shape to the dream of the Petroleum and Natural Gas Ministry to cover nearly 200 major cities under the piped gas system.

CEO of Essar Oil L.K. Gupta said the partial deregulation of diesel prices was a welcome step but complete deregulation was the need of the hour.

“The industry wants the government to remove national calamity contingent duty [NCCD] on crude oil levied at Rs.50 per metric tonne, which was imposed on domestic and imported crude oil in the Union budget 2003-04, and waiver on customs duty on import of materials such as pipes, valves, flanges, data communication system used by oil companies for laying of gas pipelines and petroleum products,” he said.

The Central board of Excise and Customs (CBEC) recently issued a circular, as per which, on a stay application filed before the Commissioner (Appeals) and CESTAT, recovery was to be initiated 30 days after the filing of appeal if no stay was granted or after the disposal of stay petition in accordance with the conditions of stay. “This circular should be withdrawn in order to avoid hardships to the industry.”

Reduction in excise duty on branded high-speed diesel and motor spirit products should be given in line with normal HSD/MS to mitigate the wide variation in the selling prices of branded and unbranded HSD/MS products. In view of the huge difference in the current excise duty structure, the marketing of these premium branded products, which helped in energy saving and better life of vehicles, had virtually come to a standstill, “which is not in the interest of a nation that imports almost 80 per cent of its oil requirements,” he said.

The Association of Oil and Gas Operators (AOGO) has sought an extension of the tax holiday period under Section 80-IB (9) from seven years to 15 years from the year of production to encourage oil and gas exploration or that the company be given the option of claiming tax holiday for a period of at least 10 consecutive years within 15 years from the year of commercial production.

The industry has also sought clarity on the definition of ‘mineral oil’ as provided under various provisions of the Income Tax Act, 1961, and statutes governing petroleum sectors i.e. the Oilfields (Regulation and Development) Act, the Oil Industry (Development) Act, which includes petroleum and natural gas.

However, sub-section (9) of Section 80-IB does not provide any definition of the term for pre-NELP blocks; therefore, the term’s meaning has to either be imported from other provisions of the I-T Act or construed from the definition given under the statutes governing petroleum sectors.

In order to clear the doubt and remove ambiguity, the industry feels it should be clarified that the term ‘mineral oil’ includes petroleum and natural gas for the purpose of Section 80-IB (9).

The industry wants the Finance Minister to ensure that, for the purposes of claiming tax holiday, “wells / cluster of wells / field,” rather than “contract area,” should be regarded as an “undertaking.”

The industry also wants oil exploration and production companies exempted from MAT to promote the domestic exploration and production sector. This will also reduce import dependence of the nation, they feel.

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