In December 2018, Dharmendra Pradhan, India’s Minister of Petroleum and Natural Gas, announced that the federal government is initially planning to spend around US$10.2 billion (INR 70 000 crores; 1 crore = 10 million) on expansion of the natural gas pipeline network across the country, to promote a gas based economy. However, this needs to be met with scepticism, considering a few key issues that have been affecting the development of the country’s natural gas pipeline sector.
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An important issue is the non-inclusion of natural gas under the Goods and Services Tax (GST) regime. The introduction of GST in India on 1 July 2017, heralded a significant tax reform for the country, as it brought the entire country under one indirect tax umbrella. However, natural gas and four other commodities – crude oil, gasoline, diesel and aviation turbine fuel (ATF) – were not included. Both federal and state governments in India typically levy high excise duties and value added tax (VAT) on these commodities, especially on gasoline and diesel, to generate enormous revenues to primarily fund their welfare programmes. Non-inclusion under the GST regime has led to varying tax rates on natural gas production and related value chains such as pipelines and retailing in different states. A lower and uniform tax rate on natural gas production, allied infrastructure for transportation and distribution would unlock the growth potential of the natural gas pipelines sector.
Low private sector participation in the Indian natural gas pipelines sector is another key issue that needs to be addressed. Indian state-owned companies such as GAIL (India) Ltd, Indian Oil Corp. Ltd (IOCL), and Oil and Natural Gas Corp. Ltd (ONGC) dominate the country’s natural gas pipeline landscape. Reliance Industries Ltd and Hiranandani Group are among the very few notable private players in the country. To ensure growth in this sector, private participation needs to be encouraged through measures such as including the natural gas and pipelines sector under the GST ambit, complete unbundling of transportation and marketing of natural gas, and providing greater access to the government-owned pipeline network.
Though India has ample potential for natural gas consumption, it is not being translated into reality due to lack of development of major industrial consumers such as power and fertilizer plants along the proposed or operational gas pipeline routes. This, along with a lack of city gas distribution (CGD) infrastructure, is impeding the overall gas demand in the country. Low gas demand in turn results in inadequate pipeline capacity utilisation, affecting operational efficiencies of natural gas pipelines and causing financial duress to pipeline operators. Lack of adequate domestic natural gas production and low capacity utilisation of LNG import terminals (due to low demand) also impact the capacity utilisation of connected pipelines. India’s federal government is planning to expand both the natural gas pipelines network and LNG regasification capacity in the near future, for which capacity utilisation issues need to be addressed at the earliest opportunity.
Without addressing the key issues plaguing the Indian natural gas pipelines sector, it remains to be seen to what extent the Indian federal government succeeds in achieving its plan to shift to a gas based economy by 2030.
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