Gas regulator wants 10-year tax holiday for city networks

The gas regulator has written to finance and petroleum ministries recommending 10-year tax holiday for city gas distribution companies.

If granted, profits for the existing players like Mahanagar Gas Ltd and the new entrants would increase by as much as 35 per cent, leading to faster recouping of investments.

“The transmission pipelines in the country enjoy a 10-year tax holiday. We have approached the government to provide a similar incentive to the city gas distribution networks so that more players enter the fray,” B S Negi, Member, Petroleum & Natural Gas Regulatory Board (PNGRB), told Business Standard on the sidelines of a CII round table on ‘City or Local Natural Gas Distribution Networks — Authorisation’.

The government has extended tax benefits under Section 80 IA of the Income Tax Act to cross-country gas pipeline projects. This section provides for a tax holiday of 10 years out of the first 15 years of commercial production.

“This incentive, coupled with establishment of the regulator for the sector, will help in the growth of the gas transmission system,” said an analyst with an equity research firm.

Reliance Group is laying a 1,400 km gas pipeline from Andhra Pradesh to Gujarat, while GAIL and Gujarat State Petronet Limited have also announced plans for a cross-country pipeline.

Two companies — Reliance Gas and GAIL Gas — have identified 61 cities for city gas distribution projects. The gas regulator has already completed the public consultation process for them. In the next phase, these 61 cities would be put up for bidding.

The PNGRB has also written to the ministry seeking adequate quantity of gas to the country’s city gas distribution networks.

“The city gas distribution projects do not require huge gas allocations and they benefit millions of consumers in the country, upgrade their quality of life and brings down pollution levels. We are trying to convince the government that gas supply for city gas distribution networks should be continuous,” added Negi.

“We want more competition in the market and are accordingly conducting road shows to encourage more players to enter the segment so that it benefits consumers,” said L K Singhvi, Member PNGRB.

The bidding process for the city gas distribution networks may begin in a month and the authorisation for them may start by March 2009.

In the first phase, seven cities, namely Kakinada (Andhra Pradesh), Kota (Rajasthan), Mathura and Ghaziabad (Uttar Pradesh), Sonepat (Haryana), Sahdol and Bhopal (Madhya Pradesh) will have city gas distribution networks. The average cost of setting up of the city gas distribution networks in these cities is around Rs 400 crore in five years.

Currently, city gas distribution is operational only in Mumbai, Delhi and several cities in Gujarat.