Import duty waiver to make naphtha cheaper

The government today announced to lift import duty on naphtha, which is used as a fuel in power sector projects. “Import duty on naphtha for use in the power sector will be eliminated,” it said in a statement.

India is self-sufficient in producing naphtha and meets almost all of its requirement of the fuel. The elimination of import duty will bring down the price of naphtha, since petroleum products are priced on an import-parity basis, which includes components such as freight and import duty. Currently, naphtha attracts a Customs duty of 5 per cent.

“The cut on the import duty will bring an impact of about $1.5 per million British thermal units (mmbtu) on the delivered price of naphtha. This is estimated to result in an overall 50-55 paise reduction in the cost of power generated from naphtha,” said RS Sharma, chairman and managing director of NTPC Ltd, the country’s largest power generator.

Since the country is not self-sufficient in natural gas, power producers often use naphtha for generating electricity. The price of naphtha has decreased to about $10 per mmbtu as compared to over $30 per mmbtu in June this year. Prices of naphtha, which have traditionally been higher than imported gas, have fallen to levels which are currently lower than gas. This has made naphtha more competitively priced than imported gas.

“The elimination of import duty on naphtha announced by the government will ensure that the prices of naphtha and of the power produced will come down. This will give a boost to the sector as a whole,” said Dipesh Dipu, principal consultant, PricewaterhouseCoopers.

“The package will definitely help the power producers. It will help us to bring down the tariff of power that we sell to transmission companies. This is a welcome move as the prices of naphtha have fallen by 50 per cent from their peak, and elimination of import duty will result in lower cost of raw material for the power producers,” said A Subba Rao, president and CFO, GMR Energy Ltd.

To meet its growing demand for power, India needs to increase its electricity generation to about 1,000 billion units (Bus) by 2012, from a current level of about 666 Bus.