The petroleum ministry has asked the finance ministry to give infrastructure label to exploration and production (E&P) of hydrocarbons as well as to extend the subsidy on domestic LPG and kerosene beyond March 2010, when the existing scheme expires.
Despite its desire to cut back on subsidies to reduce fiscal deficit, the finance ministry has agreed to extend the subsidy scheme on domestic LPG and kerosene which was introduced after scrapping administered pricing seven years ago to make these fuels affordable. The Centre?s annual budgeted subsidies for selling the two fuels cheap is Rs 2,840 crore this fiscal. The actual subsidies are much higher.
It, however, is reluctantly weighing the demand to give infrastructure status to exploration and production of hydrocarbons, a demand it had turned down last year. Infrastructure status would make E&P activities eligible for a 10-year income tax holiday anytime during the first fifteen years of its operation.
?The public distribution kerosene and domestic LPG subsidy scheme of 2002, that expires by fiscal-end, would be extended. We are also making a compelling case for giving infrastructure status to exploration and production. Now we get tax incentives in piecemeal (for certain segments),? said a petroleum ministry official, who asked not to be named.
The business of refining mineral oil now gets a seven-year income tax holiday but not beyond 2012. Laying of cross-country natural gas pipeline too enjoys a ten-year income tax relief due to its infrastructure status. But the petroleum ministry is now trying to persuade the finance ministry to make income tax benefit applicable to the entire E&P of hydrocarbons as it wants more investments in this area. The petroleum ministry is also examining if there is anything more than the global economic slowdown that caused the relatively poor response to the blocks offered under the eighth round of national exploration licensing (Nelp), despite the seven-year tax holiday for entities producing gas from them. In October, the government received bids for only 36 of the 70 blocks auctioned, totaling an investment commitment of $ 1.3 billion. Major domestic players refrained from bidding, while state-run ONGC was the sole bidder for 21 blocks.