Gas price hike faces fertiliser hurdle
The fertiliser ministry has opposed an oil ministry proposal to raise the price of PSU gas sold under the administered price mechanism because it would increase its subsidy burden.
“We have prepared a cabinet note seeking an increase in APM (administered price mechanism) gas price. However, the fertiliser ministry has opposed it stating that it would increase the subsidy burden. The note, with comments from various departments, would be placed before the council of ministers soon,” a senior petroleum ministry official said.
The officials said the cabinet was unlikely to take a call before the upcoming budget.
In the note, the petroleum ministry has sought an increase in APM gas prices to $2.4 per million British thermal unit (mBtu) from $1.8 per mBtu. Eventually, it wants the price to be raised to $4.2 per mBtu, which is the one recommended by the empowered group of ministers for the gas produced from Reliance Industries’ fields in the Krishna-Godavari basin.
According to sources, the proposal, if accepted, would increase the fertiliser ministry’s subsidy burden, which is already at Rs 50,000 crore for this fiscal, by at least another Rs 20,000 crore.
“The government wants to cap the subsidy for fiscal management and any increase in input costs will raise the subsidy burden. There will be a problem in the allocation of the subsidy,” a fertiliser ministry official said. Fertiliser firms consume around 30 per cent of the APM gas.
The budget for the current fiscal has forecast an unprecedented fiscal deficit of over Rs 4 lakh crore, or 6.8 per cent of the gross domestic product.
Feb 15, 2010
Feb 8, 2010
Parikh charges up private oil retailers
Private refiners Reliance, Essar and Shell plan to re-enter the petrol pump business in a big way if the government goes ahead with the Kirit Parikh panel’s recommendation to have free market pricing in petrol and diesel.
The private refiners had shut their pumps down when crude oil jumped to $147 a barrel and the state-owned refiners compensated for selling fuel below costs by the government.
“Private refiners are closely watching the government move. Free market pricing of petrol and diesel now is the most appropriate as it is around $70 to $80 a barrel,” industry sources said.
The first indication of their aggressive intent came from Essar group chairman Shashi Ruia who said Essar Oil planned to increase its petrol pumps to 2,000 in the next few months from 1,450.
Sources in Reliance Industries said they would re-enter the business if the government provided a level-playing field to the private players.
D.R. Dogra, chief executive officer of Credit Analysis & Research, said “the complete deregulation may prompt private players such as Reliance, Essar and Shell to reopen their retail fuel outlets, putting pressure on the market share of public sector oil marketing companies.
“In the past, the entry of private players in the retail fuel market had resulted in an erosion of about 10 per cent in the market share of the public sector companies.”
PSU fears
Sources in the state-owned refiners said they would suffer immensely if the government just freed petrol and diesel prices, while leaving kerosene and LPG untouched.
“Private sector players would then have a field day because they can sell petrol and diesel at market-determined prices. Two-thirds of our losses are from cooking gas and kerosene,” the sources said.
The private firms had a market share of 14 per cent in 2006, but it had gradually reduced to a negligible sum following the spike in crude prices and absence of a compensating mechanism.
Reliance had to shut its retail operations down after global crude oil prices peaked. Essar and Shell India also closed some of their pumps, but when crude prices softened, they restarted some operations.
Free pricing
Arguing for free market pricing in its report, the Parikh committee said “a market-determined pricing system for petrol and diesel can be sustained in the long run by providing level playing field and promoting competition among all players, public and private, in the oil and gas sector.”
The report said a spike in crude price from $70 a barrel to $120 a barrel would result in an increase of around Rs 160 per month for two wheeler users and less than Rs 1,000 per month for car owners.
Private refiners Reliance, Essar and Shell plan to re-enter the petrol pump business in a big way if the government goes ahead with the Kirit Parikh panel’s recommendation to have free market pricing in petrol and diesel.
The private refiners had shut their pumps down when crude oil jumped to $147 a barrel and the state-owned refiners compensated for selling fuel below costs by the government.
“Private refiners are closely watching the government move. Free market pricing of petrol and diesel now is the most appropriate as it is around $70 to $80 a barrel,” industry sources said.
The first indication of their aggressive intent came from Essar group chairman Shashi Ruia who said Essar Oil planned to increase its petrol pumps to 2,000 in the next few months from 1,450.
Sources in Reliance Industries said they would re-enter the business if the government provided a level-playing field to the private players.
D.R. Dogra, chief executive officer of Credit Analysis & Research, said “the complete deregulation may prompt private players such as Reliance, Essar and Shell to reopen their retail fuel outlets, putting pressure on the market share of public sector oil marketing companies.
“In the past, the entry of private players in the retail fuel market had resulted in an erosion of about 10 per cent in the market share of the public sector companies.”
PSU fears
Sources in the state-owned refiners said they would suffer immensely if the government just freed petrol and diesel prices, while leaving kerosene and LPG untouched.
“Private sector players would then have a field day because they can sell petrol and diesel at market-determined prices. Two-thirds of our losses are from cooking gas and kerosene,” the sources said.
The private firms had a market share of 14 per cent in 2006, but it had gradually reduced to a negligible sum following the spike in crude prices and absence of a compensating mechanism.
Reliance had to shut its retail operations down after global crude oil prices peaked. Essar and Shell India also closed some of their pumps, but when crude prices softened, they restarted some operations.
Free pricing
Arguing for free market pricing in its report, the Parikh committee said “a market-determined pricing system for petrol and diesel can be sustained in the long run by providing level playing field and promoting competition among all players, public and private, in the oil and gas sector.”
The report said a spike in crude price from $70 a barrel to $120 a barrel would result in an increase of around Rs 160 per month for two wheeler users and less than Rs 1,000 per month for car owners.
Feb 4, 2010
Panel pill to tame fuel subsidy
Government subsidies on fuel could be maintained at a “bearable” level of Rs 20,000 crore per year irrespective of the price of crude in the international markets, if the government implements the Kirit Parikh panel report.
The panel said this could be done through free pricing of petrol and diesel, periodically raising prices of cooking gas cylinders (LPG) and kerosene, reducing the allocation of kerosene and directing ONGC Ltd and Oil India Ltd to part with some of their earnings when crude price goes above a certain level.
“If petrol and diesel are allowed free-market pricing, kerosene and domestic LPG prices are raised periodically… the subsidy burden of the government would come down substantially,” Kirit S. Parikh, chairman of the committee on sustainable pricing of petroleum products, said after submitting its report to petroleum minister Murli Deora.
The committee also suggested that when the crude oil price crossed $60 per barrel, state-owned Oil and Natural Gas Corporation Ltd (ONGC) and Oil India could be asked to part with a proportion of their excess earnings. This is only on crude produced from their nomination blocks.
Parikh said even if the price of crude changed from $70 per barrel to $140 per barrel “the burden on the budget of the government would remain stable at about Rs 20,000 crore, and that I think is a bearable burden for subsidy”.
He said “the government should compensate the gap by providing cash subsidy from the budget. The oil firms marketing PDS kerosene and domestic LPG should be compensated fully for their under-recoveries.”
N.R. Bhanumurthy of the National Institute of Public Finance and Policy said, “The recommendations should be the long-term objectives of the government, but given the political economy situation, it appears unlikely that they would be fully implemented in the medium term.”
In the sharing of revenue, if crude moved beyond $60 per barrel, the report suggested the levy of a special oil tax on ONGC and OIL. Parikh said such a levy should be restricted only on blocks given on a nomination basis.
According to the Parikh report, when crude price rules in the range of $60-70 per barrel, 20 per cent of the excess price over $60 should be the taxable rate.
When crude is in the range of $70-80 per barrel, the rate should be 40 per cent of the excess price over $70.
For crude at $80-90, the recommended levy is 60 per cent above $80. Beyond $90 per barrel, it is 80 per cent above $90.
In its presentation before the committee, ONGC had stated that a crude price hike led to an increase in the cost of inputs such as field service material and equipment. “(Therefore) SOT rate should be calibrated so that ONGC is able to retain some portion of increase in price to cover rise in costs.”
Till last year, upstream firms such as ONGC were asked to bear one-third of the total revenue loss suffered by the state-owned oil marketing companies for selling fuel below cost.
This year, they have been mandated to bear all of the revenue loss for selling petrol and diesel below cost.
ONGC has in the six years since 2003-04 doled out Rs 86,005 crore in fuel subsidies; this year it has already paid over Rs 5,000 crore.
In 2008, the B.K. Chaturvedi committee had recommended that the special oil tax should kick in at $75 per barrel, but its report had been not implemented so far.
The Parikh committee is the third panel constituted by the government on oil pricing. The recommendations of the previous C. Rangarajan and Chaturvedi committees have not been fully implemented.
Government subsidies on fuel could be maintained at a “bearable” level of Rs 20,000 crore per year irrespective of the price of crude in the international markets, if the government implements the Kirit Parikh panel report.
The panel said this could be done through free pricing of petrol and diesel, periodically raising prices of cooking gas cylinders (LPG) and kerosene, reducing the allocation of kerosene and directing ONGC Ltd and Oil India Ltd to part with some of their earnings when crude price goes above a certain level.
“If petrol and diesel are allowed free-market pricing, kerosene and domestic LPG prices are raised periodically… the subsidy burden of the government would come down substantially,” Kirit S. Parikh, chairman of the committee on sustainable pricing of petroleum products, said after submitting its report to petroleum minister Murli Deora.
The committee also suggested that when the crude oil price crossed $60 per barrel, state-owned Oil and Natural Gas Corporation Ltd (ONGC) and Oil India could be asked to part with a proportion of their excess earnings. This is only on crude produced from their nomination blocks.
Parikh said even if the price of crude changed from $70 per barrel to $140 per barrel “the burden on the budget of the government would remain stable at about Rs 20,000 crore, and that I think is a bearable burden for subsidy”.
He said “the government should compensate the gap by providing cash subsidy from the budget. The oil firms marketing PDS kerosene and domestic LPG should be compensated fully for their under-recoveries.”
N.R. Bhanumurthy of the National Institute of Public Finance and Policy said, “The recommendations should be the long-term objectives of the government, but given the political economy situation, it appears unlikely that they would be fully implemented in the medium term.”
In the sharing of revenue, if crude moved beyond $60 per barrel, the report suggested the levy of a special oil tax on ONGC and OIL. Parikh said such a levy should be restricted only on blocks given on a nomination basis.
According to the Parikh report, when crude price rules in the range of $60-70 per barrel, 20 per cent of the excess price over $60 should be the taxable rate.
When crude is in the range of $70-80 per barrel, the rate should be 40 per cent of the excess price over $70.
For crude at $80-90, the recommended levy is 60 per cent above $80. Beyond $90 per barrel, it is 80 per cent above $90.
In its presentation before the committee, ONGC had stated that a crude price hike led to an increase in the cost of inputs such as field service material and equipment. “(Therefore) SOT rate should be calibrated so that ONGC is able to retain some portion of increase in price to cover rise in costs.”
Till last year, upstream firms such as ONGC were asked to bear one-third of the total revenue loss suffered by the state-owned oil marketing companies for selling fuel below cost.
This year, they have been mandated to bear all of the revenue loss for selling petrol and diesel below cost.
ONGC has in the six years since 2003-04 doled out Rs 86,005 crore in fuel subsidies; this year it has already paid over Rs 5,000 crore.
In 2008, the B.K. Chaturvedi committee had recommended that the special oil tax should kick in at $75 per barrel, but its report had been not implemented so far.
The Parikh committee is the third panel constituted by the government on oil pricing. The recommendations of the previous C. Rangarajan and Chaturvedi committees have not been fully implemented.
Petro potion tickles & rattles
- Radical proposals to raise prices leave govt with unenviable option
The Manmohan Singh government has been served a chalice of petroleum reforms too bitter to swallow politically but irresistible economically.
Transportation and kitchen fuel prices could rise if the government marshals courage to accept the sweeping recommendations made by a committee that suggested market-determined pricing of petrol and diesel, an increase of Rs 100 per cooking gas cylinder and a Rs 6-per-litre hike in the price of kerosene sold through ration shops.
“The current petroleum product pricing of the government is not sustainable,” said Kirit Parikh, chairman of the committee, after submitting the report today to petroleum minister Murli Deora.
Deora later said the Parikh report would be placed before the cabinet for discussion within a week. “We are very keen not just to discuss (the report) but also see what can be done for consumers and the government,” Deora added.
Parikh believes that the government, which is under pressure to put a lid on rising subsidies, will be receptive to the radical proposals. (See chart)
“This is the best time to free prices of petrol and diesel. The price increases will be very low now…. You ought not to wait for crude oil prices to touch $120 a barrel,” he added. Crude oil prices are currently hovering around $76 a barrel.
Industry sources said the price of petrol could go up by Rs 4.70 per litre and diesel by Rs 2.30 per litre if the government grants pricing freedom to the state-owned oil marketing companies like Indian Oil Corporation.
The economics may be right but the proposals have come at a time the government is battling price rise in a year elections will be held in Bihar.
Analysts expect political pragmatism to override economic wisdom, prompting the government to adopt only a few token measures.
“The government has to bite the bullet sometime but the quantum of the increase may not be as much as suggested by the panel,” said D.K. Joshi, economist with rating agency Crisil.
Political parties said they would oppose any move that raised the prices of essential commodities.
“We are confident that the government would keep the larger picture in mind while arriving at an appropriate decision,” said Congress spokesperson Manish Tiwari.
The government, which rode to power on the populist aam admi plank and the slogan of inclusive growth, will be hard pressed to raise the price of kerosene sold through the ration shops which hasn’t been changed since March 2002.
The committee felt that a price of Rs 15 per litre was justified as 35 per cent of kerosene sold through the ration shops was being diverted for unauthorised purposes including adulteration of diesel.
The committee believed that an inflated fuel bill for motorists – estimated at a maximum of Rs 1,000 a month for car owners based on an all-India average of driving distances and assuming global crude oil prices surge to $120 a barrel from current levels – is entirely bearable. People who live in the metros may have to pay somewhat more.
The more realistic medium-term assumption is that car owners in metros should expect a Rs 7 per litre hike in petrol prices, which would translate into a little over Rs 600 increase in monthly petrol bills if crude oil prices stay under $80 a barrel.
In the case of two-wheeler owners, the committee says the additional increase will be only Rs 50 a month (on the basis of an all-India average of driving distances and fuel efficiency standards) or Rs 80 a month in metros.
In the unlikely event that crude prices surge to $ 120 a barrel, the two-wheeler owners will have to pay just Rs 160 more every month – which it reckons isn’t going to be hard on the pocket.
The committee also said that there was no social reason to subsidise gas-guzzling sports utility vehicles (SUVs) and, therefore, proposed diesel prices should also be market determined.
- Radical proposals to raise prices leave govt with unenviable option
The Manmohan Singh government has been served a chalice of petroleum reforms too bitter to swallow politically but irresistible economically.
Transportation and kitchen fuel prices could rise if the government marshals courage to accept the sweeping recommendations made by a committee that suggested market-determined pricing of petrol and diesel, an increase of Rs 100 per cooking gas cylinder and a Rs 6-per-litre hike in the price of kerosene sold through ration shops.
“The current petroleum product pricing of the government is not sustainable,” said Kirit Parikh, chairman of the committee, after submitting the report today to petroleum minister Murli Deora.
Deora later said the Parikh report would be placed before the cabinet for discussion within a week. “We are very keen not just to discuss (the report) but also see what can be done for consumers and the government,” Deora added.
Parikh believes that the government, which is under pressure to put a lid on rising subsidies, will be receptive to the radical proposals. (See chart)
“This is the best time to free prices of petrol and diesel. The price increases will be very low now…. You ought not to wait for crude oil prices to touch $120 a barrel,” he added. Crude oil prices are currently hovering around $76 a barrel.
Industry sources said the price of petrol could go up by Rs 4.70 per litre and diesel by Rs 2.30 per litre if the government grants pricing freedom to the state-owned oil marketing companies like Indian Oil Corporation.
The economics may be right but the proposals have come at a time the government is battling price rise in a year elections will be held in Bihar.
Analysts expect political pragmatism to override economic wisdom, prompting the government to adopt only a few token measures.
“The government has to bite the bullet sometime but the quantum of the increase may not be as much as suggested by the panel,” said D.K. Joshi, economist with rating agency Crisil.
Political parties said they would oppose any move that raised the prices of essential commodities.
“We are confident that the government would keep the larger picture in mind while arriving at an appropriate decision,” said Congress spokesperson Manish Tiwari.
The government, which rode to power on the populist aam admi plank and the slogan of inclusive growth, will be hard pressed to raise the price of kerosene sold through the ration shops which hasn’t been changed since March 2002.
The committee felt that a price of Rs 15 per litre was justified as 35 per cent of kerosene sold through the ration shops was being diverted for unauthorised purposes including adulteration of diesel.
The committee believed that an inflated fuel bill for motorists – estimated at a maximum of Rs 1,000 a month for car owners based on an all-India average of driving distances and assuming global crude oil prices surge to $120 a barrel from current levels – is entirely bearable. People who live in the metros may have to pay somewhat more.
The more realistic medium-term assumption is that car owners in metros should expect a Rs 7 per litre hike in petrol prices, which would translate into a little over Rs 600 increase in monthly petrol bills if crude oil prices stay under $80 a barrel.
In the case of two-wheeler owners, the committee says the additional increase will be only Rs 50 a month (on the basis of an all-India average of driving distances and fuel efficiency standards) or Rs 80 a month in metros.
In the unlikely event that crude prices surge to $ 120 a barrel, the two-wheeler owners will have to pay just Rs 160 more every month – which it reckons isn’t going to be hard on the pocket.
The committee also said that there was no social reason to subsidise gas-guzzling sports utility vehicles (SUVs) and, therefore, proposed diesel prices should also be market determined.
Feb 3, 2010
Kitchen comfort under threat
Consumers may get only six subsidised LPG cylinders every year and pay the market rate for additional purchases in that year.
This recommendation, which may lead to less use of this ubiquitous device in Indian kitchens, could find its way in the report of the Kirit S. Parikh committee on sustainable pricing of petroleum products. The panel is likely to submit its report tomorrow.
If the recommendation goes through, consumers would have to pay around Rs 600 to Rs 650 per cylinder, almost double the amount they pay now.
Sources said the panel which met today to finalise its recommendations favoured market-linked pricing of petroleum products and subsidies only for the needy rather than the general population.
They said a final call on the recommendations of the report would be taken by Prime Minister Manmohan Singh after considering other factors such as inflation and political concerns.
Officials said the huge gap between commercial cylinders, which cost Rs 1,000-1,200 per 19kg cylinder, and the domestic ones often led to diversion of the later for commercial purposes.
The last Economic Survey had stated that the subsidy regime for LPG and kerosene had to be reformed so that “all the needy get the intended benefit... limit LPG subsidy to a maximum of 6-8 cylinders per annum per household”.
The B.K. Chaturvedi committee report submitted in 2008 had made a similar suggestion. But the Union government sat tight on the report as it was in an election mode then.
According to sources, the time is right for the government to limit subsidy — firstly, the fiscal deficit in this financial year is seen at Rs 4 lakh crore, which needs to be redressed and second, the government has a clear mandate for the next four years, which should help it to push through the unpopular proposal.
The Chaturvedi panel had said that the subsidy should be brought down to zero in four years. It said six cylinders should be subsidised in the first year, four in the second, two in the third and none in the fourth year.
Households should be encouraged to subscribe to the piped city gas network, wherever available.
For BPL families, the LPG subsidy as well as that for kerosene should be provided either through smart cards or through direct cash transfers, the panel said.
Oil ministry officials said subsidised prices of LPG and kerosene were “greatly misaligned… leading to huge uneconomic use and unintended benefits to certain classes of consumers”.
Kerosene and cooking gas cylinders comprise the lion’s share of revenue losses suffered by the three state-owned oil marketing companies — Indian Oil, Bharat Petroleum and Hindustan Petroleum.
Petroleum secretary S. Sundareshan said in the current financial year the three state-owned retailers were estimated to lose around Rs 31,000 crore on cooking fuels and around Rs 10,000 crore on petrol and diesel.
Consumers may get only six subsidised LPG cylinders every year and pay the market rate for additional purchases in that year.
This recommendation, which may lead to less use of this ubiquitous device in Indian kitchens, could find its way in the report of the Kirit S. Parikh committee on sustainable pricing of petroleum products. The panel is likely to submit its report tomorrow.
If the recommendation goes through, consumers would have to pay around Rs 600 to Rs 650 per cylinder, almost double the amount they pay now.
Sources said the panel which met today to finalise its recommendations favoured market-linked pricing of petroleum products and subsidies only for the needy rather than the general population.
They said a final call on the recommendations of the report would be taken by Prime Minister Manmohan Singh after considering other factors such as inflation and political concerns.
Officials said the huge gap between commercial cylinders, which cost Rs 1,000-1,200 per 19kg cylinder, and the domestic ones often led to diversion of the later for commercial purposes.
The last Economic Survey had stated that the subsidy regime for LPG and kerosene had to be reformed so that “all the needy get the intended benefit... limit LPG subsidy to a maximum of 6-8 cylinders per annum per household”.
The B.K. Chaturvedi committee report submitted in 2008 had made a similar suggestion. But the Union government sat tight on the report as it was in an election mode then.
According to sources, the time is right for the government to limit subsidy — firstly, the fiscal deficit in this financial year is seen at Rs 4 lakh crore, which needs to be redressed and second, the government has a clear mandate for the next four years, which should help it to push through the unpopular proposal.
The Chaturvedi panel had said that the subsidy should be brought down to zero in four years. It said six cylinders should be subsidised in the first year, four in the second, two in the third and none in the fourth year.
Households should be encouraged to subscribe to the piped city gas network, wherever available.
For BPL families, the LPG subsidy as well as that for kerosene should be provided either through smart cards or through direct cash transfers, the panel said.
Oil ministry officials said subsidised prices of LPG and kerosene were “greatly misaligned… leading to huge uneconomic use and unintended benefits to certain classes of consumers”.
Kerosene and cooking gas cylinders comprise the lion’s share of revenue losses suffered by the three state-owned oil marketing companies — Indian Oil, Bharat Petroleum and Hindustan Petroleum.
Petroleum secretary S. Sundareshan said in the current financial year the three state-owned retailers were estimated to lose around Rs 31,000 crore on cooking fuels and around Rs 10,000 crore on petrol and diesel.
Feb 1, 2010
Satyam in time plea for SEZs
Mahindra Satyam has sought more time from the authorities to set up its three special economic zones (SEZs) in Andhra Pradesh.
“We have decided to go slow on infrastructure and expansion because of global economic recession in IT, in particular. The company is in the process of analysing the worldwide economic situation to amend the expansion plans appropriately,” Mahindra Satyam said.
The board of approval for special economic zones, headed by commerce secretary Rahul Khullar, will take up the matter on February 11.
Satyam Computer Services, now called Mahindra Satyam, plans to develop three SEZs — at Hitec City and Bahadurpally (both in Hyderabad) and Thotlakonda (near Visakhapatnam) — in Andhra Pradesh.
The three proposed tax-free zones have already been given an extension, which would lapse in June.
The company said it had completed the first phase of the 12-hectare SEZ at Hitec City, with a built-up area of 2,41,064 square feet.
“We spent Rs 78 crore on this. Work for the second phase is in progress and is likely to be completed by September. We expect exports to commence by the end of next fiscal,” the company informed the board of approval.
The zones that get in-principle approval have to complete land acquisition within a year of approval, while a formally approved SEZ with land under possession has to make the tax-free enclave operational within three years.
Officials said the new management of the company, which is reviewing Satyam’s past activities, wanted to go slow on the SEZs as there was no demand for space.
The SEZ Act of 2005, which became effective from February 10, 2006, gave units within the zone and their developers certain tax benefits.
Under the act, developers are entitled to 100 per cent tax exemption on profits for 10 years on the trot during the first 15 years of operations.
Units are entitled to a 100 per cent tax exemption on export profits during the first five years of operations and 50 per cent exemption for the next five years.
From the 11th to the 15th year, the units are eligible for a 50 per cent waiver on reinvested profits.
So far, extensions have been granted to 105 developers. More than Rs 1 lakh crore has been invested in around 100 SEZs.
The BoA has so far notified 335 SEZs, while 147 have got in-principle approvals.
Mahindra Satyam has sought more time from the authorities to set up its three special economic zones (SEZs) in Andhra Pradesh.
“We have decided to go slow on infrastructure and expansion because of global economic recession in IT, in particular. The company is in the process of analysing the worldwide economic situation to amend the expansion plans appropriately,” Mahindra Satyam said.
The board of approval for special economic zones, headed by commerce secretary Rahul Khullar, will take up the matter on February 11.
Satyam Computer Services, now called Mahindra Satyam, plans to develop three SEZs — at Hitec City and Bahadurpally (both in Hyderabad) and Thotlakonda (near Visakhapatnam) — in Andhra Pradesh.
The three proposed tax-free zones have already been given an extension, which would lapse in June.
The company said it had completed the first phase of the 12-hectare SEZ at Hitec City, with a built-up area of 2,41,064 square feet.
“We spent Rs 78 crore on this. Work for the second phase is in progress and is likely to be completed by September. We expect exports to commence by the end of next fiscal,” the company informed the board of approval.
The zones that get in-principle approval have to complete land acquisition within a year of approval, while a formally approved SEZ with land under possession has to make the tax-free enclave operational within three years.
Officials said the new management of the company, which is reviewing Satyam’s past activities, wanted to go slow on the SEZs as there was no demand for space.
The SEZ Act of 2005, which became effective from February 10, 2006, gave units within the zone and their developers certain tax benefits.
Under the act, developers are entitled to 100 per cent tax exemption on profits for 10 years on the trot during the first 15 years of operations.
Units are entitled to a 100 per cent tax exemption on export profits during the first five years of operations and 50 per cent exemption for the next five years.
From the 11th to the 15th year, the units are eligible for a 50 per cent waiver on reinvested profits.
So far, extensions have been granted to 105 developers. More than Rs 1 lakh crore has been invested in around 100 SEZs.
The BoA has so far notified 335 SEZs, while 147 have got in-principle approvals.