ECC likely to give five-year tax exemption to LNG operators

Petroleum ministry tries to get incentives in desperate attempt to cut gas shortage.

ISLAMABAD: The Economic Coordination Committee (ECC) in its meeting today (Friday) may allow five-year income tax holiday to LNG terminal operators and ten-year tax exemption to low British Thermal Unit (BTU) gas producers in the new BTU Gas Policy in a bid to lure companies to increase gas availability in the country.

Sources told The Express Tribune that the petroleum ministry would table two summaries relating to duties and tax exemptions on gas import projects including Iran-Pakistan (IP), Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline projects and LNG imports.

The ministry has proposed wellhead price between $6 per mmbtu and $8.75 per mmbtu for low BTU gas, which is expected to add 200 million cubic feet of gas in the system.

ECC, the top economic decision making body, in its meeting held on December 1, 2011, referred Low Btu Policy to Council of Common Interest (CCI) after Minister for Water and Power Syed Naveed Qamar had raised concern over the price proposed for low BTU fields.

Qamar had said the gas price should be referred to the CCI to develop a consensus among the provinces. However, the ministry is likely to direct approval of the ECC without going through the directed channel.

Tax exemptions and incentives on gas import projects have been proposed after consultation with the Federal Board of Revenue (FBR) and the finance division.

In a summary relating to tax exemptions for gas import projects, the ministry sought exemption of sales tax/federal excise duty on imported natural gas at import stage as laid down in indigenous case for exploration and production companies. The same treatment has been proposed for natural gas infrastructure importers and its developers. Exemption from sales tax for EPC contractors involved in gas import projects and exemption from custom duties on HR coils, line pipe, pylons/piles has also been sought.

ECC has also been requested that import of equipment, machinery, LNG terminals and peripheral infrastructures be allowed on duty free basis. Collection of applicable taxes, duties and any other levies may be deferred till the commencement of commercial operations of natural and LNG import projects on the analogy of such facility provided to power projects by ECC in July 2009, summary adds.

A petroleum ministry official says that it is making its best efforts to improve gas availability position in the country by jacking up indigenous gas production as well as through imported natural gas and LNG to mitigate shortage.

Gas import projects are capital intensive and technically complex, requiring timely foreign investment and import of critical equipment, materials and machinery.

Keeping in view such higher upfront costs as well as the country’s risk profile, attractive costs and facilitative incentives are required to encourage foreign investors to participate in the projects, official further said.

Published in The Express Tribune, January 20^th, 2012.