With gas supply expected to drop by 60% in the next ten years, the Economic Coordination Committee (ECC) is likely to allow ten-year tax holiday to low British Thermal Unit (BTU) gas producers in a bid to increase supply for power generation.
Low BTU gas, having a heating value of less than 450, is ideal used by the power and fertiliser sector.
The incentives in the new BTU Policy 2011 for producers would help attract investment to develop gas fields to supply gas to the power sector. At present, there are some fields in the country that have potential of low BTU gas. Current gas production of 4.1 bcfd may decline to 1.6 bcfd in 2022 as gas fields are depleting, posing a serious threat to the overall economy.
The incentives will help add 200 million cubic feet of gas per day to the power sector that is currently depending on expensive alternate furnace oil to generate power, sources told The Express Tribune.
The top economic decision making body is expected to approve the new BTU Policy 2011 in the upcoming meeting on November 28.
Sources maintained that the petroleum ministry wanted to grant income tax holiday for minimum ten years and zero-duty tax regime for import of machinery to develop the gas fields.
Petroleum Secretary Ijaz Chaudhry told The Express Tribune that the maximum price had been set at $8.75 per mmbtu for low Btu gas.
He added that the upper cap would be 450 Btu per standard cubic feet (btu/scf) in the policy. The reduction of gas heating value below 450 would get more incentive.
Under the gas pricing regime, gas of 450 to 600 heating value would be given price of $6 per Million British Thermal Unit (mmbtu). Meanwhile, price would be raised by $0.01 per mmbtu for each unit the heating value is less than 450. The minimum level has been set at 175.
The price of $6 per mmbtu is also being given for onshore fields in the proposed Petroleum Policy 2011.
Under the new BTU Policy 2011, the government will also charge 25% windfall levy, difference between applicable low BTU gas policy price and its sale to the third party other than the government.
Published in The Express Tribune, November 26th, 2011.
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What you need to tell us is how much these "incentives" will cost in terms of lost revenue.
Experience teaches us that giving tax holidays and exemptions on import of machinery etc while important are NOT what determins the level of investment. Investors want other things: rule of law, security, enforcement of contracts, labor skills, etc.
These "incentives" which only complicate and fracture the tax base further are just a free, unearned bonus. This investment would come on stream anyway provided other conditions were right.