Natural gas importers will be given tax rebates, including pipeline gas from Central Asia and liquefied natural gas (LNG), in a move to ease losses of energy firms, according to a statement released by the Ministry of Finance Monday.
The rebates of value-added tax will apply if import prices are higher than domestic wholesale prices and will be offered from 2011 through 2020, based on the proportion obtained from the price gap between imports and domestic prices divided by import prices. The proportion will be calculated every quarter.
Pipeline gas imports from Central Asia before the end of 2010 can also enjoy the same tax rebates, the statement said.
Previously, firms were required to pay a 13 percent value-added tax when importing natural gas.
The sales price of natural gas has been kept at a low level to encourage the consumption of clean fuel, so there is a severe inversion of the import costs and domestic prices and importing firms are suffering great losses, Lü Ying, a natural gas analyst at Shanghai-based oilgas.com, an oil and gas information provider, told the Global Times Monday.
China National Petroleum Corporation (CNPC) imported 4.3 billion cubic meters of natural gas in 2010, and incurred losses of 3.7 billion yuan ($577 million), the company said in March. It has urged the government for price adjustments and reform of the natural gas pricing mechanism since 2009.
“The development costs are State-mandated and the selling prices are also non market-oriented, so natural gas firms lack motivation to participate in the industry. But the government is encouraging the development of the industry. This is a contradiction, which should be resolved through the reform of the pricing mechanism,” said Lü.
The natural gas consumption reaches its peak in the second half year. But the inflation pressure is expected to ease in the second half, so it’s not a good time to increase the price of natural gas, as it would have an impact on the CPI, said Lü. “So the government hopes to mitigate the losses of the firms like CNPC temporarily through the rebate,” she said.
From January to July 2011, China’s consumption of natural gas totaled 73.4 billion cubic meters, including imports of 16.8 billion cubic meters, which doubled from a year ago, and accounted for 22.9 percent of the total consumption. Imports will account for half of China’s natural gas demand by 2020, analysts said.
The tax rebate can ease but not completely make up for the losses, CNPC spokesman Mao Zefeng told Reuters.
The rebate can reduce CNPC’s losses in natural gas imports by 10 to 15 percent, said Gordon Kwan, head of regional energy research at Mirae Asset Securities.