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PGP 2011-2013 Term IDate of Submission: 04/09/2011Industrial Awareness

Submitted by

GROUP-9

Anil Joshi (PGP2011543)

Chetan Chouhan (PGP2011601)

Khullar Abhinav Braham (PGP2011689)

Nirnay Bhaskar (PGP2011754)

P Kameswari Jyotsna (PGP2011762)

Rameen Khan (PGP2011818)

Uttam Kumar (PGP2011924)

Oil and Petroleum

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Contents

1. Overview of the Industry................................................................................................3

2. Major Refineries.............................................................................................................4

3. Major Players..................................................................................................................6

4. Government Initiatives...................................................................................................8

5. OPEC...............................................................................................................................9

6. Implications of WTO .....................................................................................................10

7. Opportunities.................................................................................................................11

8. Elasticity of Oil Demand and Supply.................................................................................12

9. Financial Analysis of the Industry...................................................................................13

10. Key events relating to industry.......................................................................................14

11. Impact of the Union Budget.........................................................................................15

12. Exhibits.......................................................................................................................17

13. References.....................................................................................................................25

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Overview of the IndustryThe Indian Oil and Petroleum industry is one of the oldest in the world, with oil being struck at Makum near Margherita in Assam in 1867 nine years after Col. Drake's discovery in Titusville.

The years since independence have seen the rapid growth of the upstream and downstream oil sectors. Indigeneous crude production has risen to 35 million tonnes per year, an addition of fourteen refineries, an installed capacity of 69 million tonnes per year and a network of 5000 km of pipelines. But with the consumption of hydrocarbons said to increase manifold in the coming decades (155mmtpa by the end of the 10th plan) the liberalisation, deregulation and reforms in the petroleum sector is essential for the health and overall growth of our economy. This is clear from the fact that India Petroleum Industry, in the past, has played an influential part in triggering the speedy expansion of the country's economy by contributing 15% of the total GDP. Further, petroleum exports have given a new dimension to foreign exchange earnings by drawing US$ 23.64 billion in the FY 2008-09

To assist and acknowledge the expansion of the sector, the Cabinet Committee on Economic Affairs felicitated 44 petroleum research blocks on November 2008 under the New Exploration Licensing Policy (NELP-VII)

Trends in various production segments Refinery production : Refinery production in context of crude oil escalated from 156.11 MT in FY

2007-08 to 160.67 MT in FY 2008-09. Indian Oil Corporation Ltd is looking forward to elevate the capacity of its Haldia refinery and Panipat refinery plants to 7.5 million tonnes and 15 million tonnes respectively in the future

Natural Gas Production : The natural gas production in 2008-09 increased from the previous year's 32.40 billion cubic metres tonnes (BCM) to 32.84 BCM. In 2009 alone the Natural gas production was registered at 33,846 million cubic metres

Crude Oil Production : The projected production of crude oil during the 11th Five-Year Plan (2007-2012) is 206.76 MMT, while that of natural gas is 255.27 BCM. Cumulative production of crude oil between April-December 2009 was 25,152 MT, while cumulative production of refinery production during the same period was 119,283 MT.

With close to 70% of its oil requirements imported from more than 8 countries, India is a net importer of oil. The rest 30% is provided by the domestic oil production.

India’s oil consumption has increased and the production almost remained the same. This did not take into account the recent findings of Reliance in KG basin. Even if they did find some other reserves the graph is not likely to be changed in the future.

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India imports more than 70% of its oil needs from several different countries with Saudi Arabia and Iran topping the list.

These pictures give a holistic view of energy consumption in India, its oil usage and imports. One trend is clear. The oil production is not increasing, but the oil usage is increasing. And oil is a major factor in India’s energy equation. Refer Exhibit-1 for details.

Major Refineries in India

1. Jamnagar Refinery: The Jamnagar Refinery is a private sector crude oil refinery owned by Reliance Industries in Jamnagar, Gujarat, India. The refinery was commissioned on 14 July 1999 with an installed capacity of 668,000 barrels per day (106,200 m3/d). It is the largest refinery in the world. Reliance Petroleum Limited (RPL) on 25 December 2008 announced the commissioning of its refinery in a Special Economic Zone at Jamnagar, Gujarat in India. With the completion of the RPL refinery, Jamnagar has emerged as the ‘Refining Hub of the World’ with the largest refining complex with an aggregate refining capacity of 1.24 million barrels of oil per day in any single location in the world. There are plans in the pipeline to process High Pour Point crude oil extracted at Barmer, Rajasthan in the near future which would require an electrically heat traced pipeline to be set up from Barmer to Jamnagar.

2. Mathura Refinery: It was commissioned in the year 1982. At present it has the capacity of processing 8.0 MMTPA of crude oil. The refinery meets the demand of Northwest region of India including Delhi. The crude oil with low sulphur from Bombay High, imported crude with low sulphur from Nigeria, and crude with high sulphur from Middle East Countries are processed at this refinery. Mathura refinery has been producing highly eco-friendly petrol and diesel for sometime and enjoys the distinction of being the first refinery in India capable of producing 100% auto fuels that meets Euro - III norms.

3. Mangalore Refinery: is a subsidiary of Oil and Natural Gas Corporation Limited (ONGC). It is the only Indian refinery to have 2 Hydrocrackers producing HighCetabe i.e. Premium Diesel and 2 CCRs. Both of them produce Unleaded Petrol of High Octane.. At present its processing capacity is 9.69 million metric tonnes per annum.The main products of Mangalore Refinery and Petrochemicals Limited are Liquid Petroleum Gas, Aviation Turbine Fuel, Furnace Oil, Automotive Diesel Fuel, Vacuum Gas Oil, and Bitumen and so on. The company exports various products outsideIndia.

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Major PlayersDomesticBharat Petroleum Corporation of India Limited (B.P.C.L)Large, state-owned petroleum company headquartered in Mumbai; figures in the Fortune 500 list of companies. Its activities include refining, retailing (petrol pumps etc), LPG, lubricants, industrial fuels & petrochemicals, aviation fuel etcMr R. K. Singh; Chairman & Managing DirectorMajor Products: petroleum, gas, lubricantsMarket Cap: .24,658.84₹Listed: The Stock Exchange, Mumbai, and National Stock Exchange of India LtdStrengths/Weaknesses:Its efficient operation had achieved the highest growth in Bitumen sales amongst the public sector oil companies Bharat Petroleum required higher borrowings to fulfil the working capital requirements. The completion of Propylene Recovery Unit (PRU) during the year which would produce 50,000 MT per annum of 95%purity chemical grade propylene in Kochi Refinery would enhance the revenue source of the company. Merger of the erstwhile Kochi Refineries Limited (KRL) allows BPCL to exploit on KRL's advantages. Increased borrowings led to significant rise in the interest costOpportunities/Threats:Decline in the international prices helped in providing relief for oil companies’ adverse impact of the volatile prices of crude oil and finished products. The fluctuations in foreign exchange rates have impacted BPCL’s profitability. Government also issued bonds to the oil marketing companies to compensate for the losses suffered on sale of the four sensitive products. Demand fell as systemic failure of the credit markets had led to economy meltdowns. Oil companies incurred losses on the sale of bonds owing to the decline in the bond prices Government is contemplating the deregulation of pricing of transport fuels i.e. MS and HSD

Hindustan Petroleum Corporation Limited (H.P.C.L)State-owned company which is the second-largest integrated oil refining & marketing enterprise in India; corporate office is in Mumbai; activities: LPG, international operations, bulk fuel & specialities, lubricants, retail, aviation etcMajor Products: petroleum, gas, lubricants

Indian Oil Corporation Limited (I.O.C.L)State-owned oil company that owns 10 of India's 18 refineries and owns & operates the country's largest network of crude & product pipelines; corporate office is in New Delhi; IndianOil is India's largest company by salesMajor Products: petroleum, gas, petrochemicals

Oil and Natural Gas Corporation of India Ltd. (O.N.G.C)State-owned oil & gas enterprise and one of the largest companies in India; head office is in Dehradun (Uttarakhand); only fully integrated petroleum company in India (exploration, production, refining etc)Mr A K Hazarika: Chairman and Managing directorMarket Cap: - 2, 25,780.17 Cr.₹Listed: The Stock Exchange, Mumbai, National Stock Exchange of India LtdMajor Products: petroleum, gasStrengths/Weaknesses

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Despite lower profits amidst the economy turmoil, the company had declared dividend at par with the previous year. It is also facing difficulties to produce oil from aging reservoirs. The company has undertaken some recovery schemes which have slowly shown results but it takes a long time which involves high technology, high investment and high risksOpportunities/ThreatsThe fluctuations in foreign exchange rates have impacted ONGC’s profitability. Government also issued bonds to the oil marketing companies to compensate for the losses suffered on sale of the four sensitive products. Demand fell as systemic failure of the credit markets had led to economy meltdowns. Government was contemplating the deregulation of pricing of transport fuels i.e. MS and HSD .Oil companies incurred losses on the sale of bonds owing to the decline in the bond prices

Reliance India Limited (R.I.L)Fortune 500 flagship company of the Reliance Group; the group's activities span exploration & production of oil & gas, petroleum refining & marketing, petrochemicals (polyester, fibre intermediates, plastics and chemicals) & textiles; based in MumbaiMajor Products: petroleum, petrochemicals, textiles, yarn Mr Mukesh D Ambani; Chairman and Managing directorMarket Cap: . 58,882.50₹Listed:The Stock Exchange, Mumbai, National Stock Exchange of India Ltd., Luxembourg Stock Exchange, London Stock ExchangePromoter:Mr Mukesh D Ambani

Essar GroupBusiness group with interests in steel, oil & gas, power, telecom & BPO, shipping & construction; based in Ahmedabad, GujaratMr Shashi Ruia, Chairman / Chair PersonMarket Cap: - .11, 959.33₹Listed: The Stock Exchange, Mumbai, and National Stock Exchange of India LtdMajor Products: Energy, PetroleumPromoters: Essar Investments Limited, Essar Shipping Limited, South India Shipping Company Limited, Essar Gujarat Limited and a foreign co-promoter, Prime Finance Company Limited

Exhibits 9 and 10 summarizes a few important financial parameters of the above

O.N.G.C contributes 77% of India’s crude oil production and 81% of India’s natural gas production. It is the market leader in terms of profit making capability. Earnings and other info included in Exhibit-7.

InternationalSaudi Aramco, Saudi ArabiaSaudi Arabian Oil Company is the state owned national oil company of Saudi Arabia having the world’s largest proven crude oil reserves of 260 billion barrels and largest daily oil production. It is very likely the world’s most valuable privately held company with its value ranging from 2.2 trillion USD to 7 trillion USD

Exxon Mobil CorporationAn American oil and gas corporation, it is the progeny of John D. Rockefeller's Standard Oil Company and formed by the merger of Exxon and Mobil. Currently the world's biggest publicly

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traded company, headquartered in Irving, Texas, its reserves at the end of 2007 were around 72 billion barrels of oil-equivalents (BBOE), which are expected to last for the next 14 years

Royal Dutch Shell plc (SHELL)It was formed in 1907 when Royal Dutch Petroleum Company merged with Shell Transport & Trading Company Ltd, UK. The second largest energy company, it produces 3.1 billion barrels equivalent of oil per day having operations in 90 countries

British Petroleum (B.P)Having its headquarters in London, this company was formed by William Knox D'Arcy in May 1908 in the Middle East. Originally called the Anglo-Iranian Oil Company (AIOC) , it became the British Petroleum in 1954 and in 1998, it became BP Amoco after merging with Amoco of Indiana. In 2000, it was renamed BP and adopted the tagline "Beyond Petroleum."

Chevron/Texaco CorporationIt was formed after the split of John D. Rockefeller's Standard Oil Company in 1911 and named SoCal. It was one of the Seven Sisters that dominated the world oil industry in the early 20th century

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Government InitiativesThe government has been taking many progressive measures to create a conducive policy and regulatory framework for attracting investments:

Allowing 100 per cent foreign direct investment (FDI) in private refineries through automatic route and 26 per cent in government-owned refineries

Implementation of the NELP in 1997In order to increase exploration activity, GoI has approved the New Exploration Licensing Policy (NELP) in March 1997 to level the playing field in the upstream sector between private and public sector companies in all fiscal, financial and contractual matters. Salient features of the NELP:

There will be no mandatory state participation through ONGC/OIL nor there did any carry interest of the government.

The two public sector upstream companies would compete for petroleum exploration licenses, instead of the existing system of granting of licenses on nomination basis.

Open availability of exploration acreage to provide a continuous window of opportunity to companies.

Freedom to the contractors for the marketing of crude oil and gas in the domestic market. Royalty payments at the rate of 12.5% for the on land areas and 10%for the offshore. To encourage exploration in deep-water and frontier areas royalty will be charged at half the

prevailing rate for normal offshore area. Prompt action by the Ministry of Petroleum and Natural Gas to sign the PSC's for exploration

blocks.

Abolition of the administered pricing policy-Under the Administered Pricing Mechanism for petroleum products, a fixed level of profitability for the oil companies is ensured subject to their achieving their specified capacity utilization. The administered pricing policy of petroleum products ensures that products used by the vulnerable sections of the society, like kerosene, or products used as feedstock for production of fertilizer, like naphtha, may be sold at subsidized prices.

Deregulation of Oil Prices by Government in 2010-India relies on imports for more than 75 percent of its energy needs and the government sets fuel prices to cushion the poor from high international price. The international crude oil prices, were at 70$ per barrel in February 2010.The prices in Delhi in February 2010 for the common fuel were: Petrol Rs 44.63 a litre, Diesel Rs 32.87 a litre, 14.2-kg LPG cylinder Rs 281.20 and kerosene Rs 9.09 per litre. At these prices, the Indian Oil, Bharat Petroleum and Hindustan Petroleum were losing Rs 46,030 crore in revenues in the fiscal year 2010-2011

Current Prices (in Delhi): Petrol= Rs 63.70/litreDiesel=Rs.41.29/litreLPG=Rs 399/14.2kg cylinder

Government RegulationsThe Ministry of Petroleum and Natural Gas, Government of India is entrusted with the responsibility of exploration and production of oil and natural gas including the import of LNG, refining, marketing, distribution, import, export and conservation of petroleum product

Petroleum and Natural Gas Regulatory Board Act, 2006This Act provided for the establishment of Petroleum and Natural Gas Regulatory Board to regulate

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the refining, processing, storage and transportation, distribution, marketing and sale of petroleum, petroleum products and natural gas excluding production of crude oil and natural gas so as to protect the interests of consumers

Natural Gas Pipeline Policy, 2006The Government of India notified the policy for development of natural gas pipelines and city or local natural gas distribution networks in India. The policy would promote investment from the public and private sectors in natural gas transmission. The pipeline policy provides for the regulator to set a ceiling rate for transportation charges. Companies will be free to offer rates at different levels as long as it is under the ceiling

OPECOrganization of Petroleum Exporting Countries is an intergovernmental organization of twelve developing countries made up of Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela. OPEC has maintained its headquarters in Vienna since 1965, and hosts regular meetings among the oil ministers of its Member Countries. The principal goal of the organization is the determination of the best means for safeguarding the organization's interests, individually and collectively. It also pursues ways and means of ensuring the stabilization of prices in international oil markets with a view to eliminating harmful and unnecessary fluctuations, an efficient and regular supply of petroleum to consuming nations, and a fair return on their capital to those investing in the petroleum industryOPEC's ability to control the price of oil has diminished somewhat since then, due to the subsequent discovery and development of large oil reserves in Alaska, the North Sea, Canada, the Gulf of Mexico, the opening up of Russia, and market modernization. As of November 2010, OPEC members collectively hold 79% of world crude oil reserves and 44% of the world’s crude oil production, affording them considerable control over the global market. The next largest group of producers, members of the OECD and the Post-Soviet states produced only 23.8% and 14.8%, respectively, of the world's total oil production

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Implications of WTO

The rules of the General Agreement on Tariffs and Trade (GATT), and now the World TradeOrganization (WTO), do not deal with energy as a distinct sector. In recent years, energy topics have reappeared on the negotiations agenda. There are several reasons for this:

Several energy-exporting countries have recently joined the WTO and others are negotiating their accession, hence, a substantially larger amount of energy trade is now in the hands of WTO Members trade.

Increasing energy needs have led to a growing interest in competition rules and export restriction practices.

Progressive unbundling of vertically integrated state-owned entities offers a way for private operators to enter energy markets.

Energy Charter TreatyThe Energy Charter Treaty entered into force in 1998. The main elements of the ECT include: ‘investment protection; trade in energy, energy products and energy related equipment, based on the WTO rules; freedom of energy transit; international dispute settlement, including investor-state arbitration and interstate arbitration; promotion of energy efficiency, and attempts to minimize the environmental impact of energy production and use’.

Opportunities in Oil & GasGrowing energy demand of India and necessity to service that to ensure economic growth is not compromised, presents business opportunities in the complete value chain of oil and gas sectorExploration & Production (E&P)In order to improve the current 18 per cent level of exploration of sedimentary blocks, the Government of India launched the New Exploration and Licensing Policy (NELP) in the year 2000RefiningIndian companies are expanding refinery capacity and putting up green-field refinery projects. Global oil majors are seriously evaluating investments in India. Recently BP announced understanding for forming a joint venture with HPCL (Hindustan Petroleum Corporation Ltd.) for a grassroots refineryPipelinesCrude and refined product pipeline infrastructure across the country would need to grow as refinery capacities grow. As currently planned, crude and refined product pipeline infrastructure would increase by 4,065 km and 15,788 km respectively

Foreign playersCairn Energy• Independent Scottish explorer and quoted on the London Stock Exchange.• Investments of over US$ 1 billion in the E&P Assets in Rajasthan• Key Success Factors:

Growing oil consumer and bulk of this consumption is met through oil imports. This provides significant opportunities for Cairn as India is relatively an unexplored market

FDI is allowed in this segment Joint ventures with behemoths like ONGC and utilization of local talent

Shell

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• Fortune 500 company with focus on petro marketing, natural gas, lubricants, LPG, petrochemicals and solar energy• Shell Hazira LNG project: Second LNG project to be commissioned in India with an investment of US$ 650 million• Key Success Factors:

Leveraged its international expertise to build and consolidate in India Sensitized to opportunities which allowed it to enter them in the right manner

BP• Fortune 500 company with focus on petro marketing, lubricants, E&P and LNG• MoU with HPCL to set up a refinery in Bhatinda with investment of US$ 444 million• Possibility of partnership with ONGC and RIL for deepwater exploration program• Key Success Factors: Growth in lubricants through brand equity and acquisition of Lubricants

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Elasticity of Oil Demand and Supply

Higher oil demand matched against an inelastic short run supply of oil invariably drives market prices higher – this is shown in the diagram below. An increase in demand causes a fall in oil stocks at the major international refineries and pushes prices higher. This acts as a signal to suppliers to expand production. However there are time lags between a change in price and extra supplies coming on stream.

The demand for oil is also price inelastic. This combination of an inelastic demand and supply helps to explain some of the volatility in world oil prices.

The interaction between oil demand and supply in the long run

If consumers are faced with an extreme change in the price of gas, their pattern of demand for gas changes. They not only start choosing different types of transportation – like taking the bus or riding a bicycle to work – but they also start buying more gas-efficient vehicles – like compact cars, motorcycles, or scooters. The effect is a major change in total demand and a major shift in the demand curve. The new schedule for demand is now Demand 2, shown below.

You can see this in the graph in figure 4, below. At each price point, the total demand is less, and the demand curve shifts.

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Porter’s analysis of oil and petroleum industry

Threat of New Entrants.  Barriers can vary depending on the area of the market in which the company is situated. Other areas of the oil business require highly specialized workers to operate the equipment and to make key drilling decisions.. Having ample cash is another barrier.

Power of Suppliers. There isn't a lot of cut-throat competition between suppliers, but they do have significant power over smaller drilling and support companies. 

Power of Buyers. The balance of power is shifting toward buyers. Oil is a commodity and one company's oil or oil drilling services are not that much different from another's. This leads buyers to seek lower prices and better contract terms. 

Availability of Substitutes.  Substitutes for the oil industry in general include alternative fuels such as coal, gas, solar power, wind power, hydroelectricity and even nuclear energy.

Competitive Rivalry.  Slow industry growth rates and high exit barriers are a particularly troublesome situation facing some firms. At the same time, exit barriers in the refinery business are quite high.

Factors impacting supply of crude oilIn short, the short-run supply of crude oil is affected by a series of different factors

1. Profit motive: The production decisions of OPEC and Non-OPEC countries 2. Spare capacity: The level of spare production capacity in the oil sector3. Stocks: The current level of crude oil stocks (inventories) available for immediate supply

from the major oil refineries – i.e. a high level of stocks means that extra oil supplies can be released onto the market quickly when demand fluctuates

4. External shocks: The effects of production shocks (e.g. loss of output from rig closures or disruption of oil supplies due to war and terrorist attacks)

Taking a longer-term perspective, the long run world oil supply is linked to:

1. Reserves: Depletion of proven oil reserves – the faster that demand grows, the quicker the expected rate of depletion

2. Exploration: Investment spending on exploring, identifying and then exploiting new oil reserves. When oil prices are rising and are expected to stay strong for the foreseeable future, it makes financial sense to invest more resources in exploring for new reserves, even though these may not come on stream for some years.

3. Technology: Technological change in oil extraction (which affects the costs of extraction and the profitability of extracting and then refining the oil)

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Key events related to the industry2008 (Jan 2) - WTI oil price briefly touches US$100 per barrel for the first time driven by supply concerns and the weak US dollar

2009 (June) - Khurais oilfield in Saudi Arabia brought onstream - largest single oil development ever - expected production of 1.2MMBO, 315Mmcf/d Gas and 70mbbls NGLs per day2010 (Apr 20) - Deepwater Horizon rig explosion and fire while drilling BP’s Macondo exploration well, in Gulf of Mexico, 11 workers killed and concern about a major environmental catastrophe along the Gulf Coast2010 (Oct 12) - USA lifts ban on deep water drilling in the Gulf of Mexico2011 (Feb 1) - Exxon-Mobil and partners report driling a horizontal well with a reach of 7.13miles (11425metres) to the Odoptu Field offshore Sakhalin Island. The actual measured depth of the well was reported as 12,345metres.

2011 (Aug 31) - Reliance Industries and BP have completed the $7.2-billion deal in which the British company will pick up 30% in 21 blocks

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Impact of the Union BudgetIndia is heavily dependent on imports for meeting its crude oil requirements. A recapitulation of some relevant facts and figures:

Domestic production of crude oil (FY10) stood at around 33.69 MT (Exhibit 1) Domestic consumption (FY10) was around 138.808 MTPA, balance refining output exported Imports: Almost 159.259 MT. Refinery production in India 186.562 MTPA (million tonnes per annum). Export of petroleum products showed signs of recovery, increasing at about 38 per cent

during FY10 compared to a decline of 9.44 per cent during the same period last year. GoI regulates retail prices of certain sensitive petroleum products (mainly petrol, diesel, Liquefied Petroleum Gas (LPG) and kerosene) which results in sales-related under-recoveries with volatility in crude oil prices. (Exhibit – 7)

During FY10, the total under-recoveries to Public Sector Undertaking (PSU) OMCs were Rs.45,000 crore, of which Rs.15,000 crore were borne by upstream companies and the Finance Ministry provided Rs.26,000 crore cash compensation in respect of these under recoveries. The balance was borne by the OMCs.

In the wake of an increasing budget deficit, the GOI put forth the deregulation of petrol prices in the economy. This move will

a. Reduce the downstream oil marketing companies which should see their under-recoveries reduce substantially.

b. The re-emergence of private oil retailers in domestic market such as Reliance Industries Ltd and Essar Oil, who now in the decontrolled regime will be able to pose stiff competition to the oil PSUs.

With the recent deregulation of petrol prices and increase in prices of diesel, LPG and kerosene, the under recoveries in FY11 are expected to reduce from Rs.77,000 crore to about Rs.53,000 crore.Budget Proposals

Basic customs duty on petroleum coke is reduced from 5% to 2.50% Minimum Alternative Tax proposed to be increased from 18% to18.50% of book profits.

Surcharge has been reduced from 7.50% to 5% Units operating in Special Economic Zones (SEZs) were exempt from MAT under Section

115JB of the Income Tax Act, MAT would now be levied on units operating in Special Economic Zones (SEZs) with changes in the tax rate effective from April 2012 However, these units were also given a relief to the zones wherein a new scheme is introduced in which units in SEZs will be able to obtain tax-free receipt of services wholly consumed within the SEZ.

Government will provide a direct cash subsidy on kerosene to BPL populace and the same direct cash subsidy is also proposed in case of LPG

Impact on the industryThis can be summarized as follows:

The direct cash subsidy on kerosene given to below-the-poverty-line populace would significantly reduce the under-recoveries of the Oil Marketing Companies (OMCs). Subsidy on Kerosene accounts for around 30-35% of the under-recoveries for the OMCs. In addition to the under-recoveries, it is estimated that around 35% of such kerosene marketed through the public distribution

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system is diverted illegally for other purposes. With the introduction of the direct cash subsidy, both these issues would be settled, proving positive for the OMCs. (Exhibit – 8)

The government has targeted March 2012 for implementing the same; however, this deadline seems too optimistic considering the various procedures involved in implementing the same. The increase in the MAT rate and its applicability to the units in the Special Economic Zones (SEZs) would negatively affect oil and gas companies which pay the same on account of oil and gas blocks and their presence in SEZs. However, as a slight relief, the government has reduced the surcharge rate from 7.50% to 5% in the budget

Impact on companiesCOMPANY NAME INDUSTRY IMPACT COMMENTS

Oil & Natural GasCorp. Ltd.

Exploration &Production

Negative

Increase in the MAT rate wouldadversely affect ONGC on account of certain oil & gas blocks

Reliance Industries Ltd.

Gas Exploration, Oil Refining, Petrochemicals

Negative

Increase in the MAT rate and its applicability to the units in SEZ would adversely affect RIL especially on account of its new Jamnagar refinery which is located in a SEZ at Jamnagar

Bharat Petroleum Corp. Ltd.

Refining & Marketing Positive

With the direct cash subsidy given to consumers, under-recoveries would reduce significantly

Hindustan PetroleumCorp. Ltd.

Indian Oil Corp. Ltd.

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EXHIBITS

Exhibit-1: Details of Imports and Exports

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Exhibit-2

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Exhibit 2.1

Exhibit-3

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Exhibit-4

Exhibit-5

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Exhibit-6

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Exhibit 7

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In the past 18 months, the GoI has rolled out a slew of reforms and wherein duties have been cut to almost zero levels and fuel price hikes have already been implemented. Thus, GoI has now very less leeway to implement price hikes or tweak duty structure in order to control spiralling subsidies.

Exhibit 8

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Exhibit – 8.

Exhibit -9.1

Exhibit-10

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References

1. www.ibef.org 2. www.icra.in 3. www.care.in 4. ENAM Securities: India Research5. www.isianalytics.com 6. Energy in WTO law and policy-THOMAS COTTIER, GARBA MALUMFASHI, SOFYA

MATTEOTTI-BERKUTOVA, OLGA NARTOVA,JOËLLE DE SÉPIBUS AND SADEQ Z.BIGDELI

7. HTTP://WWW.THEOILDRUM.COM/ 8. http://www.wikinvest.com/industry/Oil_%26_Gas_Drilling_%26_Exploration