OIL & GAS

SEZ Board allows GAIL to exit Kochi SEZ after repaying duty benefits

The Centre has allowed GAIL to exit as a unit from the Cochin Port Trust Special Economic Zone (CSEZ) in Puthuvypeen, Ernakulam, after repaying the duty benefits it has availed so far, as it failed to meet the requirement of being a net foreign exchange earner (NFE).

Cochin Port Trust, the developer of the SEZ, and the three co-developers — Petronet LNG, BPCL and IOCL — have been given a year’s time to bring another unit into the zone that has a direct relationship with their activities, failing which the zone will lose its SEZ status, per a decision taken by the Board of Approval (BoA) for SEZs, in a recent meeting.

It is necessary for a new unit to come up after the exit of GAIL as it was the only operational unit in the SEZ. Without a functional unit, the zone will cease to exist. “Till such time a new unit is brought in, the developer/co-developer shall not be allowed any duty-free procurement import,” the BoA ruled.

The BoA, headed by the Commerce Secretary and comprising top officials from key ministries and departments, is the top decision making body for SEZs. The Puthuvypeen SEZ was notified as an SEZ in 2006 over an area of 285.84 hectares. GAIL was issued a letter of approval in 2010 for the authorised operation of a ‘regasified LG transmission and distribution’ unit.

The unit’s activities took off in 2013, making the SEZ operational. An investment of around ₹10,000 crore had already been made in the zone with duty concessions. The GAIL unit purchases LNG from co-developer Petronet LNG and supplies it to its customers, mostly located in the domestic tariff area (DTA), which lies outside the SEZ, after re-gasification.

Per the report of the Development Commissioner (DC), CSEZ, submitted to the BoA earlier, GAIL has been operating for the last five years but during the processing of its renewal application it was found that it has not achieved a positive NFE, a necessary condition for SEZ units.

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  1. India is doomed and the Indian SEZ Policy is doomed.dindooohindoo

    • The pathetic state of the exports from the SEZ is assessed by the number of non-operative units and the poor capacity utilisation of the SEZ units – information of which is in public and national interest
    • The planning of the GOI is highlighted by the fact that the GOI has done no benchmarking of the operations of the SEZ per se, and the SEZ units within – for each sector with comparable peersl,in India and the global competition
    • If a sector, say X,exists in a SEZ in a specific maritime geography and its global export hub,is in Country A, and the GOI has not been benchmarking the operating parameters of the Indian SEZ and the SEZ units of that sector (X),every 3 years – then the said SEZ units in sector X,in India,will definitely cease to exist,or be in a state of terminal decline or exist at the mercy of competitors
    • With the miserable performance of the Indian Rupee,and its impact of reduction in Dollarised Rupee costs payable to the SEZ authority by the SEZ units – why are the exports from the SEZs still a failure In addition, in several sectors, the rupee costs paid by the SEZ units to the SEZ Authority,are not the determinant for operating and financial viability of the SEZ units
    • In essence,the GOI has utterly failed to provide a level playing field to exporters in this nation,in terms of admin costs,operating cost neutrality,financing costs,effective logistics costs and fiscal red tape and procedures
    • The centres of manufacturing excellence near SEZs (For CMT/Job work/Material and Labour sourcing) are not cost effective – as there is no synergy between the SEZ and the Industrial planning and policy
    • The strategy of the GOI is highlighted by the fact that the GOI has engaged no 3 rd party to analyse the inefficiency of the operating parameters of the SEZ , per se, and the SEZ units within the SEZ – for each sector within it , with comparable peers in India,and the global competition
    • What planning and strategy will the GOI do,if it has no formal analysis of the specific operating costs,parameters,management and other issues,which explain the dismal state of the SEZ units by sector,scale and management quality
    • The dismal state of the GOI planning is that the GOI has not properly planned the sector profile of the units in each SEZ, to ensure that the right sectors are in the appropriate geography,in the right SEZ,to minimise the net logistics costs on the EXIM chain, and minimise the inward material logistics costs – considering the future dislocations in inward and external material sources and options of transhipment and alternative export markets
    • Several SEZs invest limited equity in SEZ units and common service providers,like banks,facilities,hotels,accounting firms etc,as a demonstration of their stake in the SEZ and their strategic inputs in the planning and operation of the same – which is then used to lower the lease charges etc – which is completely absent in India
    • All of the above is to be seen in light of the fact that the SEZ has no data of the financial or operating performance of the SEZ units,loss making units or even the financial and operating performance of the Developers of the SEZ – and is naturally not concerned with the losses or the financial performance of the SEZ units therein
    • The peculiar pattern of CMT and Job workers of key sectors such as Gold and Diamond jewellers,with multiple movement of stocks at different processors o/s the SEZ – is not the norm for Gems and Jewellery SEZs or SEZ units – and represents an abnormal industrial agglomeration with a planned and structural dislocation in manufacturing and processing operations – which cannot be solely for the purposes of manufacturing and commercial efficiency.
    • Information on raids and prosecutions is critical especially in sectors with high import duties (on merit mode) for inputs,customised finished goods (wherein DRI/Customs cannot assess over invoicing),frequent movements to and from 3 rd party processors (which makes the case for wastages and losses in SION and disappearing materials), materials where the EXIM transit time is a few hours and the logistics costs are less than 1% of CIF/FOB rates, inputs and outputs with marked diferences in rates of different grades of items and offgrades,per se,warehousing artificial losses,amortisable costs ,bad debts and write offs in select SEZs (to be used for 3rd party exports or mergers to obviate tax on SEZ profits),items where the SEZ units are well aware of the sampling and test checks of the DRI and Customs at the SEZ for the inputs and outputs etc.
    • The Gems and Jewellery industry is run by cartels from a particular community spread from Western India to North America,EU,East Asia,West Asia and Africa and is a well coordinated money laundering and smuggling operation from the state of rough diamonds and raw gold,to the marketing of jewellery and warehousing of processed and raw diamonds,the banking chain,raters and the chain of associate and front companies – which is all the more insidious,as all the data with DRI/ED/Customs/Interpol used by the Indian State for surveillance is all origined from the overseas counterparts and partners of the Indian traders located in India (Who are in many cases – in spirit the same de facto entity owners)
    • The premise that Indians are the least cost labour source for the jwellery sector and their informal working style (w/o documentation,using informal labour and in slum style conditions) is an innovative marvel of Indian Genius,is a pathetic fraud and deception,and the entire array of fiscal and monetary sops for this sector (including SEZ) Allows the sector to generate financial buffers via money laundering,tax arbitrage,treasury operations, merchanting exports,accomodation financing ,cash financing, alternative fund transfers,FX speculation,leveraging double and layered financing,defrauding Indian Merchant exporters such as STC and MMTC,Credit insurance fraud etc. which provide the sector the pricing edge in overseas markets ( via illegal,nefarious and fraudulent means)

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