Much of the budget wish-list of the oil and gas sector has gone unfulfilled. There was no clarity provided on subsidy sharing, no relaxation or extension of the tax holiday clauses, no exemptions from service tax, and no hike in the price of controlled fuels which would have moderated under-recoveries.

This could mean continuing profit pressure on both the oil marketing companies (Indian Oil, BPCL and HPCL) and upstream oil companies (ONGC and Oil India).

Good for gas

But there was some consolation for gas companies. Their demand to exempt gas imports from customs duty, similar to crude oil imports, has been partially met. Natural gas and liquefied natural gas (LNG) imported for power generation by power generation companies has been exempted from basic customs duty in the budget.

At present, the customs duty rate is 5 per cent. Imported spot LNG currently costs $13-$14/mmbtu compared with the $4.2/mmbtu for most of the country's domestic gas. While the cheaper imports will primarily benefit gas-based power plants that depend on imported gas, it should also aid to some extent gas importers and regassifiers such as Petronet LNG and Shell.

Gas transmission companies, GAIL and GSPL, which procure gas cargoes and transport them to customers would also benefit from the expected increase in off-take from power producers. Also, with oil and gas storage facilities, and oil and gas pipelines being made eligible viability gap funding, gas companies should benefit.

Higher costs

For oil companies, the budget instead of providing relief on the burgeoning under-recoveries, has added to cost. The increase in cess on crude oil from Rs 2500 per tonne to Rs 4,500 per tonne will raise the production costs of oil explorers – ONGC, Oil India and Cairn India.

Not surprisingly, these stocks came under heavy pressure on the bourses, declining between 4.5 and 6 per cent in Friday's trade.

The provision for petroleum subsidy (Rs 43,580 crore) in the budget also seems inadequate, going by prevailing high crude oil prices (Brent above $120 a barrel) and the experience of last year, when actual subsidy far exceeded the budget estimate.

What though may provide respite to the oil sector is quick and effective implementation of the proposal to directly transfer LPG and kerosene subsidy benefits to intended recipients through the UIDAI mechanism.

The budget also has a provision to exempt payment to certain foreign companies in India in Indian currency for import of crude oil. While the intended beneficiaries have not been explicitly mentioned, this provision would enable ease of crude oil imports from Iran. This would aid refiners such as MRPL, which depend on Iran for the bulk of their requirement.

>anandk@thehindu.co.in

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