China is extending an existing tax exemption on imported gas to new sources of foreign pipeline gas and imported LNG.
The Ministry of Finance announced on Monday that the tax exemption will be granted to pipeline imports from Myanmar, which are expected to reach a peak rate of 10 billion cubic meters/year; LNG imports from China National Offshore Oil Corp.'s newly commissioned 3.5 million mt/year Zhuhai terminal in Gaolan, southern Guangdong; as well as CNOOC's Ningbo LNG terminal in Zhejiang, which was commissioned in September last year.
The tax exemptions have been back-dated to when the projects started operating, the MOF said.
The government had first introduced a rebate on the value-added tax, or VAT, for imports of natural gas in August 2011. This was for the 2011-2020 period as well as on any prior gas imports from the Central Asia-China pipeline network, which started operating in late 2009.
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The main aim was to encourage more gas imports to feed burgeoning demand, particularly as domestic gas prices are capped and state-owned companies routinely sell imported gas at a loss in China.
According to the guidelines, the MOF refunds the VAT if the actual prices of imported gas and LNG are higher than their respective sales prices in the domestic market.
Latest data from the General Administration of Customs show the average delivered price of pipeline gas imports into China was $8.61/MMBtu while that for LNG was $9.44/MMBtu in October.
In its latest directive, the ministry said it will use a benchmark domestic sales price of Yuan 1.11 (18 cents)/cubic meter ($5.40/MMBtu) for imported pipeline gas and a domestic sales price of Yuan 31.45/gigajoule ($5.95/MMBtu) for imported LNG to calculate the VAT rebate.
This is at least a 26% hike from the Yuan 0.88/cu m benchmark price used in 2011, said Grace Liu, analyst at Guotai Junan Securities in Shenzhen on Wednesday.
"This is in line with the last domestic price increase in July and is good for gas importers as the losses they have been making on importing gas will be reduced," she said.
The National Development and Reform Commission had raised prices for non-residential gas users in July, hiking average citygate prices in China by 15.4% to Yuan 1.95/cubic meter, or about $8.90/MMBtu.
State-owned PetroChina, the largest importer of pipeline gas and LNG in China, has received about Yuan 3 billion annually in VAT rebates on imported gas, Liu said. With the higher benchmark sales prices set by the finance ministry, the company's rebate will be reduced.
"But its losses will also be much smaller," Liu said.
PetroChina reported a Yuan 41.9 billion loss from importing LNG and pipeline gas into China last year.
--Song Yen Ling, firstname.lastname@example.org --Edited by Haripriya Banerjee, email@example.com