NTPC calls for fiscal sops on gas supplies

NTPC has requested the Ministry of Finance to consider waiving levies on LNG/RLNG, in order to make the cost of power generation from its Rajiv Gandhi Combined Cycle project, at Kayamkulam in Kerala, more competitive. Pertinently, NTPC intends to expand the existing 350 MW capacity at the gas-based project by an additional 1050 MW. Since the entire project is based on RLNG, generation costs are completely dependent on the prices of crude, which lends considerable cost volatility to power generation. Specifically, for crude price variations between 50 US$/barrel to 100 US$/barrel, the corresponding indicative Fuel Cost of Generation (FCOG) based on RLNG would be in the range of Rs 4.24/KWh to Rs 7.15/KWh at existing duty structures.

To maintain reasonable levels of returns even at the higher end of the crude price spectrum, NTPC has proposed that the 5.15% customs duty applicable on imports of LNG/RLNG and all VAT/sales tax on RLNG sales may be abolished by the government. As a buttress to its case, NTPC has banked on the economic multiplier argument, asserting that the augmented generation capacity would lead to increased economic activity, making up for any losses incurring to the exchequer from relinquishing tax proceeds.

While it remains to be seen if the central power utility`s arguments move the central government, a favorable consideration would imply good news for gas-based power generation in the country, which suffers through some of the highest energy rates in the world. As an illustration, abolition of, both, customs duty and sales tax on gas supplies would lead to an immediate drop of 30p to 56p on tariffs at the Kayamkulam CCPP.