CONCERNS OF PETROLEUM SECTOR

In the absence of a global gas market for benchmarking domestic gas prices in India, various formulae have been suggested. Since October 2014 a formula based on producer and consumer markets is being used to arrive at domestic gas prices in India. It was expected that the formula would balance the interest of producers and consumers in the country.

However, market-determined arm’s length pricing for domestic gas, with an effective regulator, to provide adequate incentive for investment and also ensure competiveness and transparency remains the first-best solution that merits consideration. It would reflect the appropriate gas price in relation to alternative fuels. In the medium-term, being a large consumer, India may be able to be a price setter for gas prices in the region. Possible steps to address the concerns of the sector are as given below (Economic Survey 2015–16):

• Petroleum products and natural gas should be included under the Goods

and Services Tax (GST), or at least its exclusion should not be indicated in the Constitution Amendment Bill.

• The cess collections could be used to support construction of a network of gas pipelines, which is of crucial importance for providing clean energy to deprived regions of the country. The progress is somewhat constrained at present by having been linked to revival of fertilizer units and development of small industries in areas along the gas highway projects. Alternatively, in order to promote the gas pipeline network, Viability Gap Funding (VGF) may be provided for promoting pipeline assets creation and development of efficient markets.

• Impetus is required for construction of not only cross-country pipelines but also city gas distribution. The present system of bidding by the Petroleum and Natural Gas Regulatory Board (PNGRB) is lopsided and long-drawn-out and needs to be reformed since it has constrained development of the gas network.

• Expansion of the PNG/CNG (Compressed Natural Gas) network could help provide gas connections to rural areas.

• Rationalization of LPG subsidy is essential. It may be useful to cap subsidy to 10 LPG cylinders for each household (that being the maximum used for usual domestic cooking) while aligning taxes and duties on domestic and commercial LPG users.

• Import of liquefied Natural Gas (LNG) for use in the power industry is exempt from customs duty while LNG for all other uses attracts 5 per cent customs duties. There should be no exemptions for any sector.

• In order to develop a cost-effective and revenue-neutral mechanism for swapping of gas across producing and consuming states for the national gas grid, it is important to make special tax provision for sale of natural gas under the Central Sales Tax Act 1956. Natural gas and LNG may be treated as declared goods to bring about tax parity with crude oil and make prices uniform across states.

Meanwhile, India has entered into exploring the unconventional resources of energy such as the CBM (Coal Bed Methane) and Shale Oil & Gas. The estimated CBM resources are about 92 TCF (trillion cubic feet) of which only 9.9 TCF has so far been confirmed – current production is about 1

million cubic metre per day. In the Shale Oil & Gas areas, presently, the assessment process is going on in 50 blocks. Commercial production is yet to begin.