IGX seeks inclusion of petroleum products in GST, gas sector reforms to boost consumption

Oil and gas budget expectations

In the upcoming Budget, Indian Gas Exchange (IGX) expects announcements related to the inclusion of petroleum products under the ambit of the goods and service tax (GST) and reforms to boost natural gas consumption in the country, MD & CEO Rajesh Mediratta told Moneycontrol in an interview.

Finance Minister Nirmala Sitharaman is set to present the first budget under the newly-elected NDA-government for the financial year 2024-25 (FY25) on July 23. The Finance Minister had presented the interim budget for FY25 on February 1 ahead of the Lok Sabha elections.

“The most important ask is inclusion of petroleum products in GST. Normally, GST is not part of the budget, because this goes to the GST council. But if there is even some announcement that when they (the government) will do this or if they will consider it, that would also be a big positive,” said Mediratta.

To be sure, any decision on GST is taken by the GST Council, a joint forum of the Centre and the states. But a recommendation in the Budget by the Finance Minister, who heads the Council, can be a big positive.

He added that to increase consumption of natural gas, the budget should include reforms to support consumption of natural gas and specifically piped natural gas (PNG). “If we get CGD network in areas where LPG is prominently used, LPG could be replaced by PNG. The government can then enforce sunset clause for consumers to move towards PNG. This will also eliminate the need for subsidies,” he said.

In all the major urban centres where pollution is high, use of polluting fuels such as coal should be banned, he added.

Mediratta expects gas consumption boost to come from the city gas distribution or CGD sector in India along with the power sector. India’s gas consumption had spiked in the recent summer months due to higher demand from the power sector. The high electricity demand amid scorching temperatures in the country drove gas consumption.

However, with the onset of monsoons in India and tepid power demand, gas consumption is expected to decline.

IGX performance

India’s first gas exchange IGX has benefitted from the recent rise in gas demand in the country as volumes at the platform rose multi-fold. In June, IGX traded 4.36 million MMBtu (million British thermal units) gas volumes, higher by 169 percent on a year-on-year (yoy) basis. Similarly, IGX reported an increase of 480 percent in gas volumes in May.

In April, the company launched small-scale liquefied natural gas (ssLNG) contracts on the platform, after receiving PNGRB approval, on the ground that the contracts would aid in the supply of the cold fuel in areas which are not connected to the gas pipelines.

Mediratta told Moneycontrol the exchange has not received significant volumes for ss-LNG until now but expects demand for the same to pick up by the end of the year. He, however, did not disclose ss-LNG volumes reported on the exchange.

“The buyers for large volumes LNG have already made long-term or yearly contracts as of now and therefore, the traction is low for ss-LNG (on IGX),” said Mediratta.

IGX has also applied to the Petroleum and Natural Gas Regulatory Board (PNGRB) for the launch of long-term contracts on the exchange.

Moneycontrol has reported that the regulator has flagged concerns over the fact that the contracts do not sufficiently address risks related to defaults by sellers or buyers and that the launch would, therefore, get delayed.

IGX, launched in 2020, has plans to launch an initial public offering (IPO) by the end of 2025 once its parent company, Indian Energy Exchange (IEX), has brought down its equity to 25 percent. IEX currently holds 47 percent equity in the gas exchange.