Indian company rigged to drill Mannar basin free of taxes

By Chandani Kirinde

Parliament on Wednesday will debate an Order under the Strategic Development Projects Act dealing with tax exemptions for the project to explore for oil and natural gas in the Mannar basin.

Under the Order made by Minister of Economic Development, Basil Rajapaksa, several tax exemptions are being extended to the project company, Cairn Lanka (Pvt) Ltd, including corporate Income taxes, Ports and Airports Development Levy, Construction and Industry Guarantee Fund Levy and Custom duties.

The project Company, a wholly owned subsidiary of Cairn India, which holds a 100% participating interest in the Mannar block, with which the Government entered into a Petroleum Resources Agreement in July 2008. Cairn Lanka acquired a 1,750 sq km, 3D seismic data of the Mannar Basin in Sri Lanka between December 2009 and January 2010, under the terms of the Agreement with the Sri Lanka Government.

The Order is being taken up as the Company prepares to start drilling in August. “Based on the 3D seismic interpretation, several prospects and leads have been identified and technical work to understand the petroleum system in this basin is ongoing. A drill ship has been contracted and final preparations for the exploratory drilling, planned to commence in August 2011, are ongoing,” Cairn India said on its web site.

Under the Order, the Company will be exempted from the payment of withholding tax on interest of foreign loans taken for capital expenditure, as well as on technical fees to consultants.

The exemption on custom duties is applicable to all capital goods imported in the name of the project company and its sub contractors. The items covered, include equipment, machinery, supplies and consumables required by the project approved by the Board of Investment.

The tax exemption is valid for a period of eight years starting October 2008 up to October 2016.Cairn India is a leading player in the Indian oil and gas industry.

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