Modi Offers Tax Relief to Revive Gas-Starved Power Utilities

  • India budget seeks to levy uniform tax on gas transport
  • Power plants of GVK, GMR, Lanco may emerge as beneficiaries

India is streamlining taxes that have hindered supplies of natural gas to power plants as part of Prime Minister Narendra Modi’s efforts to provide affordable electricity to every household in the next three years.

The federal budget presented this week clarifies the central government’s 2 percent sales tax applies to piped natural gas, superseding overlapping state levies. State-run gas transporter GAIL India Ltd. and power plants operated by GMR Infrastructure Ltd., Lanco Infratech Ltd. and GVK Power & Infrastructure Ltd. will be among the biggest beneficiaries of the change.

“Since gas is a fungible material, if the fuel is injected in a common pipeline and taken out in another, it would be treated as an inter-state sale” that will attract only federal tax, power minister Piyush Goyal said Wednesday.

The move may resolve ongoing tax disputes between end users, gas shippers and state governments. The conflicts have stymied government efforts to revive more than 24 gigawatts of gas-fired power plants that have struggled with fuel shortages. The plan, started in May, subsidizes imported gas for the plants in an effort to raise capacity and help them pay interest on outstanding loans.

“The clarification that movement of gas through common pipeline network from one state to another should attract only the central sales tax is a big relief for gas-based power projects , which are stranded because of lack of gas supply,” GMR said in an e-mailed statement. “It will put an end to avoidable tax claims.”

India’s gas-fired power plants operated at an average 22.2 percent of capacity in the 11 months through February, according to power ministry data.

“With this, there will be easier flow of gas across the country, boosting capacity utilization of all pipelines,” said R.K. Garg, finance director at Petronet LNG Ltd., the nation’s biggest importer of natural gas.

Two calls to B.C. Tripathi, chairman of gas transporter GAIL India Ltd., went unanswered.

GAIL India shares advanced 4.7 percent to 339.75 rupees at the close in Mumbai, the highest level since Feb. 10. GVK rose 3 percent to 6.90 rupees.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE