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Oil ministry asks Gujarat to cut VAT on natural gas
July, 27th 2012

Gas firms in Gujarat are upbeat after the state's high court ordered the Centre to allot natural gas for use in households and automobiles in the state and ensure uniform pricing.

However, oil ministry officials say the state is already drawing a lot of gas for industrial use and that prices can be cut by removing the 15% value added tax.

Gujarat-based six city gas distribution (CGD) players, which are expected to benefit from this Gujarat High Court's judgment, are yet to get the detailed copy of the order.

The court had ruled that the government must provide gas to customers in Ahmedabad at the same rate as in Delhi and Mumbai. It directed the Centre not to discriminate between CGDs promoted by its PSUs and private firms.

It also directed the government of Gujarat to pass necessary order within two months to make it compulsory for all vehicles in the state to switch to natural gas to reduce pollution.

GM India, Volkswagen Group, Honda Siel and industry body Society of Indian Automobile Manufacturer's Association officials said they are waiting for the copy of the judgment to evaluate its implications.

VG Ramakrishanan, senior director at Frost & Sullivan, said: "The order could have a profound impact on the engine strategy of automobile companies. The current investment is being done for conventional engines run by petrol and diesel. Any change in policies will have a long-term impact on manufacturers. Considerable amount of existing investment could be under threat if it is implemented. If other states follow similar example, OEMs will have to reinvest into a new technology altogether."

Meanwhile, the central government officials said that they had not read the decision of the High Court, therefore could not comment on specific orders.

However, the Centre and ministry of petroleum and natural gas stated that Gujarat-based CGD companies are getting about 2.25 mmscmd gas, while Delhi's lone CDG player Indraprastha Gas gets about 2 mmscmd.

"Problem of Gujarat is its policy, which favours industrial use of natural gas. The state has levied 15% VAT on compressed natural gas, while Delhi do not charge any vat on the fuel," an oil ministry official said requesting anonymity.

Oil ministry officials say that APM gas is already allocated in 2005 and KG-D6 gas is depleting. There is no additional gas to allocate to Gujarat's city gas distribution (CGD) companies.

"In fact, allocations of domestic gas to the state are quite high compared to Delhi and Mumbai. The government can't commit any new supply to any consumer as domestic gas production is on a decline due to sudden drop in gas output from KG-D6 block," another official with direct knowledge of the matter said.

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