National gas grid to boost gas availability: Fitch

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Mumbai: Fitch Ratings said on Wednesday the government’s proposal to develop a blueprint for long-distance gas highways, leading to a national gas grid will have a long-term impact, especially given the expected increase in the country's gas availability. Increased indigenous production and higher import of liquefied natural gas (LNG) are expected to boost the availability of gas. A national gas grid will also provide industrial, commercial and residential users with a viable and cleaner energy alternative, it added.

A related proposal is to extend investment-linked tax incentives for laying and operating pan-India natural gas and crude or petroleum oil pipeline networks for distribution under a common carrier principle. Under this method, all capital expenditure, other than the expenditure on land, and financial instruments, will be allowed as deductions for taxation. Under the present Income Tax Act, tax exemptions are largely profit-linked, which, according to the finance minister, are inherently inefficient and liable to misuse.

Though the setting up of an expert group to advise on a viable and sustainable system of pricing petroleum products is a welcome step, it will not yield any meaningful results unless the major recommendations are implemented. Fitch notes that such panels had previously been established but did not implement any major pricing-related recommendation.

According to Fitch, proposals laid out in the Budget are positive for the oil and gas sector, though the impact of some of the most important proposals will only be known in the long term, depending on the speed with which the government acts on its proposals, and its willingness to accept expert committee recommendations. This Budget has made several proposals for the oil and gas sector, the most important and immediate one being the extension of the tax holiday under section 80-IB (9) of the I-T Act to the commercial production of natural gas for blocks which are awarded under the New Exploration Licensing Policy (Nelp)-VIII round of bidding. This was earlier available only to profits arising from the commercial production or refining of mineral oil. Fitch believes that this proposal provides much-awaited clarity on the tax holiday on gas production. Lack of a clear perspective on this was considered one of the reasons for low interest in the last Nelp bidding round, especially from international exploration and production companies.