Bowing to pressure from private power project developers, the Andhra Pradesh government has issued orders withdrawing the Value Added Tax (VAT) on regasified liquefied natural gas (RLNG).

The gas is being supplied to private promoters by Gas Authority of India Ltd (GAIL) and Gujarat State Petroleum Corporation Limited (GSPCL). The commercial taxes department issued GOs (No. 181 and 182) on Monday exempting VAT on RLNG and bio-gas for two years. The exemption is estimated to result in a loss of Rs 2,300 crore revenue to the exchequer for the two-year period.

READ ALSO: Punjab increases VAT on steel, iron, natural gas, rolls back e-trip

The TDP government said it was providing the exemption to join the gas pooling system launched by the Centre to avail the RLNG supply through e-bidding. Earlier, the commercial taxes department had said that the proposed VAT exemption on gas would result in a loss of Rs 1,100 crore per year to the state exchequer and cautioned that such a move would end up benefiting the private power companies, which are in financial doldrums as their units have been shut due to lack of gas.

However, according to sources, energy department officials successfully convinced chief minister Chandrababu Naidu to agree to the VAT exemption on the plea that the stranded power units can resume operations by availing RLNG supplied by GAIL and GSPCL.

The energy department argued that due to shortage of gas, the gas-based power units that could together generate 3,000 mw have been idle and the state has been forced to pay the fixed costs to the companies. "Joining the gas pooling scheme launched by the Centre would give us about 1.2 million units of power immediately and also ensure the revival of the stranded power projects," said an official in the energy department.

READ ALSO: Govt to allow market price for some natural gas

But the finance and commercial taxes department cautioned the government that in the wake of a surplus in the energy sector, allowing VAT exemption would eat away precious revenue sources. Though, initially, the exemption was planned for one year, later, on the insistence of the Centre, the same was extended to two years, the sources said.

"The commercial taxes department submitted a report to the government that the exemption on RLNG and bio-gas would result in Rs 2,300 crore revenue loss in two years," said a senior official in the government. At present, the gas-based power units are paying 25 per cent VAT on liquefied natural gas.