India Halves Tax on LNG Imports in Boost to Cleaner Fuel

  • Import tax on fuel cut to 2.5% from 5%, Jaitley says
  • Tax cut to reduce price by 15 cents/mBtu, IGL’s MD says

India will halve the import tax on liquefied natural gas as it seeks to promote use of the cleaner fuel and boost its share in the country’s energy mix.

Import tax on the super-chilled fuel will be cut to 2.5 percent from 5 percent at present, Finance Minister Arun Jaitley said in his budget speech Wednesday. The development pushed up shares of Petronet LNG Ltd., the nation’s biggest importer of the fuel, as well as state-run gas marketer GAIL India Ltd. India is seeking to increase the share of natural gas in its energy mix to 15 percent by 2020 from 6.5 percent at present.

“Lowering import taxes will increase the competitiveness of the fuel,” said E.S. Ranganathan, managing director of Indraprastha Gas Ltd., a natural gas distributor in New Delhi. The lower import tax will reduce the fuel’s price by about 15 cents per million British thermal units for industrial and commercial customers, he said.

Spot LNG price in Singapore has risen about 50 percent over the past year, making the fuel unaffordable for many consumers. The cut in taxes will partly offset the impact of the price increase, benefiting users such as fertilizer companies and steel mills. Power producers have been exempted from the import tax since 2012. 

The step is credit positive for regasification terminal operators including Petronet and GAIL, K. Ravichandran, group head of corporate ratings at New Delhi-based ICRA, said in an e-mailed statement.

Petronet ended 3.4 percent higher at 386.75 rupees in Mumbai, while GAIL closed 3.6 percent higher at 484.90 rupees, the highest since November 2014.

“The step is an indication that the government wants to encourage use of cleaner fuels, but they could have waived the duty altogether,” said Debasish Mishra, a partner at Deloitte Touche Tohmatsu LLP in Mumbai.

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