GAIL seeks tax exemption for gas project in B'lore

With the commencement of the tendering process for implementing the City Gas Distribution (CGD) project in Bangalore Urban and Bangalore Rural districts, the Gas Authority of India Limited (GAIL) wants the State government to provide tax exemptions for the project, so that natural gas can be made available to consumers, including domestic consumers, at an affordable price.

The GAIL has in its recent letter to the government sought a complete waiver of entry tax, which is currently five per cent on petroleum products, and VAT (Value Added Tax) of 14.5 per cent,  on the lines Delhi. The GAIL has also proposed to adopt the Mumbai model wherein deferral period of 10 years has been given on VAT payment as another option, official sources said.

Tax exemption, if provided, will ensure availability of both Compressed Natural Gas (CNG) and Piped Natural Gas (PNG) at cheaper price to  consumers. The price of gas for consumers will be determined by multiple factors, including the basic price of gas, transportation cost, capital cost of the laying pipeline and local taxes, sources added.

A back-of-the-envelope calculation has estimated the cost of a kg of CNG or PNG to be between Rs 43 and Rs 45, including five per cent entry tax and 14.5 per cent VAT imposed by the State government. If local taxes are exempted, the price is likely to come down by about Rs 5.70 per kg. (A kg of CNG is equal to 1.2 litres of diesel and a kg of PNG is equal to 1.4 litres of petrol).

As many as eight bidders have participated in the Petroleum and National Gas Regulatory Board’s (PNGRB) tender for implementing CGD project in Bangalore Urban and Bangalore Rural district. The successful bidder, who bags the project, will lay approximately 263 km of pipeline of about two to 12- inch diameter, covering 4,395 sq km of area, including Bangalore City. Either medium density polyethylene (MDPE) pipes, or steel pipes should be used under the project.

As per the minimum work programme calendar drawn up by the PNGRB, the successful bidder has to cover five per cent of total estimated households within five years of commencement of the project implementation.

Bangalore Urban and Bangalore Rural districts have an estimated 20 lakh households.

Sources said the GAIL has been of the view that exemption of local taxes will go a long way in promoting use of natural and eco-friendly gas in Bangalore. People will come forward to use CNG and PNG if available at cheaper price. Moreover, it is feared that the hilly topography and rocky surface of Bangalore may shoot up the project cost, the sources added.