Oil and Gas– Budget Spotlight

What To Expect For The Oil and Gas Sector?

Spotlight: Oil and Gas Sector

by Sumit Pokharna, Research Analyst

• Presently, the high crude oil prices are leading to big risk of under-recoveries for oil marketing companies (OMCs) and are also impacting the upstream exploration of PSUs as they too have to bear the subsidy burden

• Being a highly regulated sector, the fortune of the Indian oil and gas sector

is extremely sensitive to government policies. The industry is eagerly anticipating measures which will encourage profitable activity in the sector. We can expect some major relief for OMCs in this budget

• The deregulation of petrol prices has led to a dieselization of the economy.

Out of the total under-recovery, 54% is on account of diesel alone. Further, Diesel (HSD) growth in April to Nov’11 has been 7.4% as against the Petrol (MS) growth rate of 4.3%. Additional excise duty on diesel gas can be imposed on Diesel vehicles, which will be positive for OMCs

• Machinery, equipment and chemicals imported by oil companies are used in Scientific R&D activities and are not eligible for exemption. We believe the FM can give some incentive to oil companies who are actively involved in developing technologies for use of alternate fuels. This will be a positive for oil companies

• The government can encourage investment in grassroots refineries and

expansion of the refineries by providing adequate tax concession. This can be done by removing the sunset clause (tax holiday to companies which begin refining between October 1, 1998 and March 31, 2012) under section 80IB (9) at least initially by extending the tax holiday up to the end of the 12th Plan period i.e. up to Mar’17. We expect the FM to extend the validity of the deduction for the refining business

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