Oil and Gas

Overview 2010
ENERGY AND NATURAL RESOURCES
kpmg.com/ in
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Head - Markets
T: +91 22 3090 2320
E: vutamsingh@kpmg.com
Head - Energy and Natural Resources
T: +91 22 3090 1740
E: arvindmahajan@kpmg.com
Vikram Utamsingh
Arvind Mahajan
www.kpmg.com/in
The oil and gas sector in India has been instrumental in fuelling the growth of the Indian
economy, hence presenting a significant opportunity for investors in the years to come. The
government has also been doing its bit in recent times to to deregulate the industry and
encourage greater foreign participation.
The New Exploration Licensing Policy (NELP), conceived to address the increasing demand
supply gap of energy in India, has proved to be successful in attracting the interest of both
domestic private sector players and some foreign players with eight rounds of bidding, with
Reliance Industries and Cairn being particularly active in this arena .
Other segments such as Refining, LNG, City Gas Distribution etc. are also seeing some
action.
India is now surplus in refining capacity and aims to establish itself as a refining hub due to
various geographical aspects in its favour as well. New refineries may eventually be built by
domestic companies and in partnerships as well, with Reliance Industries doubling the size
of its already dominant refinery in order to meet future products demand.
Moreover, the government is planning its first ever offer of shale gas exploration in 2011, a
potential game-changer with regard to the price economics of the oil and gas sector.
This document intends to provide the reader with a concise overview of the various
segments comprising the oil and gas sector in India and a basic understanding of the
players, size, major developments and dynamics of the sector across the value chain.
We have attempted to summarize all these aspects in the document giving facts and our
views and analysis regarding this space.
Keeping with this, the following chapters apprise us about the Energy Market, the Upstream
sector, Coal Bed Methane, Refining, Gas Transmission and Distribution, LNG, Shale Gas,
Retailing of Fuels and the Taxation Regime specific to the Indian oil and gas sector
I hope you find this report insightful and helpful in your study of the Indian Oil and Gas
sector
1
FOREWORD
1 KPMG Analysis
Arvind Mahajan
Executive Director and
Head of Energy and Natural
Resources Sector
KPMG in India
The oil and gas sector in India has been instrumental in fuelling the growth of the Indian
economy, hence presenting a significant opportunity for investors in the years to come. The
government has also been doing its bit in recent times to to deregulate the industry and
encourage greater foreign participation.
The New Exploration Licensing Policy (NELP), conceived to address the increasing demand
supply gap of energy in India, has proved to be successful in attracting the interest of both
domestic private sector players and some foreign players with eight rounds of bidding, with
Reliance Industries and Cairn being particularly active in this arena .
Other segments such as Refining, LNG, City Gas Distribution etc. are also seeing some
action.
India is now surplus in refining capacity and aims to establish itself as a refining hub due to
various geographical aspects in its favour as well. New refineries may eventually be built by
domestic companies and in partnerships as well, with Reliance Industries doubling the size
of its already dominant refinery in order to meet future products demand.
Moreover, the government is planning its first ever offer of shale gas exploration in 2011, a
potential game-changer with regard to the price economics of the oil and gas sector.
This document intends to provide the reader with a concise overview of the various
segments comprising the oil and gas sector in India and a basic understanding of the
players, size, major developments and dynamics of the sector across the value chain.
We have attempted to summarize all these aspects in the document giving facts and our
views and analysis regarding this space.
Keeping with this, the following chapters apprise us about the Energy Market, the Upstream
sector, Coal Bed Methane, Refining, Gas Transmission and Distribution, LNG, Shale Gas,
Retailing of Fuels and the Taxation Regime specific to the Indian oil and gas sector
I hope you find this report insightful and helpful in your study of the Indian Oil and Gas
sector
1
FOREWORD
1 KPMG Analysis
Arvind Mahajan
Executive Director and
Head of Energy and Natural
Resources Sector
KPMG in India
Overview of the Indian economy
The Indian oil and gas market
Indias upstream sector
Refining in India
Gas transmission and distribution
Coal bed methane
Liquefied natural gas
Shale gas
Fuel retailing in India
Overview of the Indian taxation regime
Regulatory and tax regime for
upstream sector
01
02
03
05
06
08
09
10
11
12
15
TABLE OF CONTENTS ACRONYMS USED
E&P Exploration & Production
CBM Coal Bed Methane
DGH Directorate General of Hydrocarbons
MT Metric Tonne
MMT Million Metric Tonnes
MMSCMD Million Standard Cubic Metres Per Day
MoPNG Ministry of Petroleum and Natural Gas
NELP New Exploration Licensing Policy
NG Natural Gas
PNGRB Petroleum and Natural Gas Regulatory Board
Overview of the Indian economy
The Indian oil and gas market
Indias upstream sector
Refining in India
Gas transmission and distribution
Coal bed methane
Liquefied natural gas
Shale gas
Fuel retailing in India
Overview of the Indian taxation regime
Regulatory and tax regime for
upstream sector
01
02
03
05
06
08
09
10
11
12
15
TABLE OF CONTENTS ACRONYMS USED
E&P Exploration & Production
CBM Coal Bed Methane
DGH Directorate General of Hydrocarbons
MT Metric Tonne
MMT Million Metric Tonnes
MMSCMD Million Standard Cubic Metres Per Day
MoPNG Ministry of Petroleum and Natural Gas
NELP New Exploration Licensing Policy
NG Natural Gas
PNGRB Petroleum and Natural Gas Regulatory Board
OVERVIEW OF THE INDIAN ECONOMY THE INDIAN OIL AND GAS MARKET
India booming
India is gaining strategic importance globally
owing to the impressive economic growth
pattern and market attractiveness. After
coming out successfully from the financial
crisis, economy is set to demonstrate robust
growth again with the GDP growth rate of
around 9.7 percent for 2010-11 . With a GDP
of USD 1.36 trillion , India is currently the
world's fourth largest economy in
Purchasing Power Parity (PPP).
1
2
India is the worlds fifth-biggest energy The oil and gas sector is dominated by state-
consumer and continues to grow rapidly. It controlled enterprises with ONGC the
is the third-biggest global coal producer, but largest upstream-oriented oil company,
has limited its supplies of oil. Oil accounts dominating the exploration and production
for about 31 percent of Indias total energy (E&P) segment and accounting for roughly
consumption, with its share of the mix around three-quarters of the countrys oil
having fallen from 35 percent earlier this output. Indias downstream segment is also
decade. Indias 5.80bn bbl of proven oil dominated by state-controlled entities,
reserves (BP Statistical Review of World although private companies have increased
Energy, June 2009) represents just 0.5 their market share. Indian Oil Corporation
percent of the worlds total, with Mumbai (IOC) is the largest state-controlled
High being the biggest producing field. downstream company, operating 10 of
Indias average oil production (total liquids) in Indias 17 refineries and controlling about
2008 was 766,000b/d. three-quarters of the domestic oil
transportation network .
In terms of gas, India currently accounts for
0.4 percent of global reserves and just over
1 percent of production . While most of the
developed gas is in Mumbai High, major
discoveries by a number of domestic
companies hold significant medium-to long-
term potential, with Reliance Industries,
state-controlled Oil & Natural Gas
Corporation (ONGC) and Gujarat State
Petroleum Corporation (GSPC) all
confirming significant deepwater finds that
are now under development or in early-stage
production.
1
1
1
Supported by high rate of domestic saving
and capital formation
Growth in savings has also supported the
surge in capital formation, which is
indicated by a steady increase in the rate of
Indias growth has been financed by a
Gross Domestic Rate of Capital Formation
steady rise in corporate and household
(GDCF) from 32.73 percent in 2004-05 to
savings. Domestic savings have been the
34.93 percent in 2008-09.
dominant source of national savings, where
the rate of Gross Domestic Savings
touches 32.53 percent (2008-09), one of
the highest among emerging economies.
Source: NCAER, IMF
Source: BP statistical review of world
energy 2010
2005-06
2.0
4.0
6.0
8.0
10.0
9.5 9.7
9.0
6.7
7.4
9.7
2006-07 2007-08 2008-09 2009-10 2010-2011E
India GDP Growth Rates
1 BMI India Oil and Gas Report Q4 2010
Indian Energy basket - 2009
Oil
32%
Coal
52%
Gas
10%
Hydro
5% Nuclear
1%
Estimated Indian Energy basket - 2025
Oil
25%
Coal
51%
Gas
20%
Hydro
2%
Nuclear
2%
01 02
1 International Monetary Fund, World Economic Outlook,
April 2010
2 Reserve bank of India, April 2010
OVERVIEW OF THE INDIAN ECONOMY THE INDIAN OIL AND GAS MARKET
India booming
India is gaining strategic importance globally
owing to the impressive economic growth
pattern and market attractiveness. After
coming out successfully from the financial
crisis, economy is set to demonstrate robust
growth again with the GDP growth rate of
around 9.7 percent for 2010-11 . With a GDP
of USD 1.36 trillion , India is currently the
world's fourth largest economy in
Purchasing Power Parity (PPP).
1
2
India is the worlds fifth-biggest energy The oil and gas sector is dominated by state-
consumer and continues to grow rapidly. It controlled enterprises with ONGC the
is the third-biggest global coal producer, but largest upstream-oriented oil company,
has limited its supplies of oil. Oil accounts dominating the exploration and production
for about 31 percent of Indias total energy (E&P) segment and accounting for roughly
consumption, with its share of the mix around three-quarters of the countrys oil
having fallen from 35 percent earlier this output. Indias downstream segment is also
decade. Indias 5.80bn bbl of proven oil dominated by state-controlled entities,
reserves (BP Statistical Review of World although private companies have increased
Energy, June 2009) represents just 0.5 their market share. Indian Oil Corporation
percent of the worlds total, with Mumbai (IOC) is the largest state-controlled
High being the biggest producing field. downstream company, operating 10 of
Indias average oil production (total liquids) in Indias 17 refineries and controlling about
2008 was 766,000b/d. three-quarters of the domestic oil
transportation network .
In terms of gas, India currently accounts for
0.4 percent of global reserves and just over
1 percent of production . While most of the
developed gas is in Mumbai High, major
discoveries by a number of domestic
companies hold significant medium-to long-
term potential, with Reliance Industries,
state-controlled Oil & Natural Gas
Corporation (ONGC) and Gujarat State
Petroleum Corporation (GSPC) all
confirming significant deepwater finds that
are now under development or in early-stage
production.
1
1
1
Supported by high rate of domestic saving
and capital formation
Growth in savings has also supported the
surge in capital formation, which is
indicated by a steady increase in the rate of
Indias growth has been financed by a
Gross Domestic Rate of Capital Formation
steady rise in corporate and household
(GDCF) from 32.73 percent in 2004-05 to
savings. Domestic savings have been the
34.93 percent in 2008-09.
dominant source of national savings, where
the rate of Gross Domestic Savings
touches 32.53 percent (2008-09), one of
the highest among emerging economies.
Source: NCAER, IMF
Source: BP statistical review of world
energy 2010
2005-06
2.0
4.0
6.0
8.0
10.0
9.5 9.7
9.0
6.7
7.4
9.7
2006-07 2007-08 2008-09 2009-10 2010-2011E
India GDP Growth Rates
1 BMI India Oil and Gas Report Q4 2010
Indian Energy basket - 2009
Oil
32%
Coal
52%
Gas
10%
Hydro
5% Nuclear
1%
Estimated Indian Energy basket - 2025
Oil
25%
Coal
51%
Gas
20%
Hydro
2%
Nuclear
2%
01 02
1 International Monetary Fund, World Economic Outlook,
April 2010
2 Reserve bank of India, April 2010
Although the story of the Oil & Gas government introduced the NELP in 1997- The weightage to the above three
industry can be traced all the way back to 98, with an aim of encouraging private parameters has varied from one round to
October 1889 when oil was first explored sector investment in the oil and gas sector the other over the eight rounds of NELP.
in Digboi, Assam, India still has vast and providing a level playing field to the
As on 30 June 2010, the total investment
unexplored/poorly explored territories. public and private sector through allocating
made by Indian and foreign companies was
Exploration activity, prior to The New acreages on the basis of competitive
around USD13.8 billion. After concluding
Exploration Licensing Policy (NELP), was bidding as opposed to a nomination basis
eight rounds of NELP, 239 production-
dominated by public sector firms such as of earlier. Companies are expected to bid
sharing contracts (PSCs) have been
Oil and Natural Gas Corporation Ltd. on the following parameters:
signed . The eighth round of the NELP was
(ONGC) and Oil India Ltd. (OIL). The sector
The Work Programme committed to be launched in April 2009 offering 70 blocks,
received a major boost in 1974, when the
undertaken the highest number of exploration blocks
massive Mumbai High fields were
ever. A total of 62 companies comprising
Percentage of value of annual
discovered off India's west coast. Even
10 foreign and 52 Indian companies have
production sought to be allocated
after three decades, these fields continue
made bids and 31 PSCs were signed with
towards cost recovery
to be the mainstay of India's indigenous
20 companies in the NELP VIII.
production .
Profit petroleum share offered to the
government at various levels of
Realising that these fields would gradually
Investment multiples .
deplete over time and no major discoveries
were being brought into production, the
2
1
NELP IX
As a result, Indian service providers will be
NELP IX was announced in October 2010
scaling up their activities and capabilities,
with various road shows being planned in
enhancing their fleet size and widen their
major Indian and international cities by the
portfolio by offering different specialised
government to attract private investment.
services and developing their manpower.
Also, with an increased exploration activity
Some of the local players might also aim to
in India post NELP, we are likely to witness
offer their services to other E&P (Exploration
increased demand for oil and gas allied
& Production) firms across the world e.g.
services in India, particularly given the focus
Aban Lloyd. On the other hand, MNC
on deepwater blocks and frontier basins.
players such as Baker Hughes, BJ Services,
Schlumberger, Aker Kvaerner, etc. are likely
to find that the market for their services in

India continues to grow.

Outlook for E&P activity in India
Given the commencement of production On the other hand, the promise offered by
from RIL's KG Basin fields, the certain acreages, particularly off India's east
commencement of Cairn India's production coast, means that the prospects for the
and the potential development of the growth of the upstream sector remains
discoveries announced by GSPC and ONGC, bright with an expected positive spin-off
the E&P sector is poised to see effect on the provision of off-shore services.
considerable activity in the near future. This The government has also shown positive
could mean an increased interest in intent in terms of monetising
exploring India's hydrocarbon potential by unconventional resources like shale gas and
foreign players. However, the recent could be prepared to organise bid rounds as
economic downturn as well as the perceived early as mid next year.
government intervention on freedom to
market gas could serve as a dampener.
INDIAS UPSTREAM SECTOR
Snapshot of previous rounds of NELP
NELP-I NELP-II NELP-III NELP-IV NELP-V NELP-VI NELP-VII NELP-VIII
No. of blocks offered 48 25 27 24 20 55 57 70
No. of blocks bid for 28 23 24 21 20 52 45 36
No. of bids received 45 44 52 44 69 185 181 76
No. of Blocks awarded 25 23 23 21 20 52 44 31
1 NELP VIII website
2 Notice Inviting Offers for NELP VIII, from NELP-VIII website
03 04
Although the story of the Oil & Gas government introduced the NELP in 1997- The weightage to the above three
industry can be traced all the way back to 98, with an aim of encouraging private parameters has varied from one round to
October 1889 when oil was first explored sector investment in the oil and gas sector the other over the eight rounds of NELP.
in Digboi, Assam, India still has vast and providing a level playing field to the
As on 30 June 2010, the total investment
unexplored/poorly explored territories. public and private sector through allocating
made by Indian and foreign companies was
Exploration activity, prior to The New acreages on the basis of competitive
around USD13.8 billion. After concluding
Exploration Licensing Policy (NELP), was bidding as opposed to a nomination basis
eight rounds of NELP, 239 production-
dominated by public sector firms such as of earlier. Companies are expected to bid
sharing contracts (PSCs) have been
Oil and Natural Gas Corporation Ltd. on the following parameters:
signed . The eighth round of the NELP was
(ONGC) and Oil India Ltd. (OIL). The sector
The Work Programme committed to be launched in April 2009 offering 70 blocks,
received a major boost in 1974, when the
undertaken the highest number of exploration blocks
massive Mumbai High fields were
ever. A total of 62 companies comprising
Percentage of value of annual
discovered off India's west coast. Even
10 foreign and 52 Indian companies have
production sought to be allocated
after three decades, these fields continue
made bids and 31 PSCs were signed with
towards cost recovery
to be the mainstay of India's indigenous
20 companies in the NELP VIII.
production .
Profit petroleum share offered to the
government at various levels of
Realising that these fields would gradually
Investment multiples .
deplete over time and no major discoveries
were being brought into production, the
2
1
NELP IX
As a result, Indian service providers will be
NELP IX was announced in October 2010
scaling up their activities and capabilities,
with various road shows being planned in
enhancing their fleet size and widen their
major Indian and international cities by the
portfolio by offering different specialised
government to attract private investment.
services and developing their manpower.
Also, with an increased exploration activity
Some of the local players might also aim to
in India post NELP, we are likely to witness
offer their services to other E&P (Exploration
increased demand for oil and gas allied
& Production) firms across the world e.g.
services in India, particularly given the focus
Aban Lloyd. On the other hand, MNC
on deepwater blocks and frontier basins.
players such as Baker Hughes, BJ Services,
Schlumberger, Aker Kvaerner, etc. are likely
to find that the market for their services in

India continues to grow.

Outlook for E&P activity in India
Given the commencement of production On the other hand, the promise offered by
from RIL's KG Basin fields, the certain acreages, particularly off India's east
commencement of Cairn India's production coast, means that the prospects for the
and the potential development of the growth of the upstream sector remains
discoveries announced by GSPC and ONGC, bright with an expected positive spin-off
the E&P sector is poised to see effect on the provision of off-shore services.
considerable activity in the near future. This The government has also shown positive
could mean an increased interest in intent in terms of monetising
exploring India's hydrocarbon potential by unconventional resources like shale gas and
foreign players. However, the recent could be prepared to organise bid rounds as
economic downturn as well as the perceived early as mid next year.
government intervention on freedom to
market gas could serve as a dampener.
INDIAS UPSTREAM SECTOR
Snapshot of previous rounds of NELP
NELP-I NELP-II NELP-III NELP-IV NELP-V NELP-VI NELP-VII NELP-VIII
No. of blocks offered 48 25 27 24 20 55 57 70
No. of blocks bid for 28 23 24 21 20 52 45 36
No. of bids received 45 44 52 44 69 185 181 76
No. of Blocks awarded 25 23 23 21 20 52 44 31
1 NELP VIII website
2 Notice Inviting Offers for NELP VIII, from NELP-VIII website
03 04
India, with its current capacity of around the small refineries in the North-east,
180 million tones per annum (mtpa) is which are land-locked and possess a sub-
poised to emerge as a major refining hub, optimal economic size. Similarly major
with considerable capacity additions being technology upgrades are necessary to be
planned over the next few years . Of a total able to produce output from relatively
of 20 refineries in India, public sector units lower grade crude which reduces sourcing
have a capacity of 107.5 MMTPA while the costs thus increasing margins as well as
private sector players comprising of RIL meet new fuel specification standards.
and Essar have a capacity of close to 72
Capacity additions as well as Greenfield
MMTPA.
refineries announced by public and private
sector players indicate that almost 40-50
MMTPA of additional refining capacity will
be added by 2013-14 bringing the total
available capacity to nearly 240 MMTPA. In
The country has further large expansions
the medium term this surplus supply
planned and is aiming to emerge as a
indicates that there may be reservations
refining hub even as global refining markets
against making more investments in the
have tightened with the closure of small
refinery space till the time domestic
refineries in North America and Europe
demand catches up.
mainly due to challenges in investing in
cleaner fuels and high compliance costs. In
addition, permits for Greenfield refineries
are hard to obtain in these countries due to
the environmental concerns. Therefore,
capacity addition is primarily coming from
emerging economies like India, China and
some Middle Eastern countries .
Many of the private sector refineries are
focusing on the export market. As far as
the PSU refineries are concerned, concerns
have been expressed over the viability of
1
Status of the sector
Outlook for refining sector
Regardless of above, some players are
mulling over setting up inland refineries
close to demand centers thus reducing the
cost of distribution (e.g. BPCL plans to set
up a 12 mtpa refinery in Allahabad). This may
result in substituting products of other
refineries and hence creating pressure on
the coastal refineries to look at exports.
REFINING IN INDIA
The transmission and distribution segment to construct four new cross country
of the natural gas sector remains relatively pipelines . Gujarat State Petronet Ltd.
The IPI Gas Pipeline Project has been
under-developed, but this is likely to change (GSPL), a GSPC Group company involved in
conceived as a tripartite arrangement
in the medium term. gas transmission arm also has an extensive
between Iran, Pakistan and India, with the
network of around 2400 Km in Gujarat,and
volumes being divided between the two
recently, PNGRB has completed the
importing countries of India and Pakistan.
bidding process for three new pipelines
The pipeline is estimated to cost around
too.
USD 7.5 billion and is expected to be 2300
The gas transmission domain in India has
The existing pipeline capacity of ~220 Km in length .
been dominated by the GAIL India Limited.
mmscmd is expected to increase to ~ 660
It operates the Hazira Vijaipur
Although some progress was made,
mmscmd in the medium term . This
Jagdishpur (HVJ) , Dadri Vijaipur Pipeline
several outstanding issues remained.
expansion in infrastructure would lead to
(total 3452 Km long), and a few other
Issues around safe delivery of gas through
better gas availability, better tapping of
pipelines, connecting the LNG terminal at
Pakistan and price of gas lead to the talks
demand and thus in turn increase the
Dahej to Vijaipur and Uran and the power
being suspended in 2008. In April 2010
natural gas demand.
plant at Dabhol to Panvel .
some progress was made when India
proposed to discuss the pipeline with Iran .
With the recent domestic gas finds in the
KG basin off the East coast of India the
transmission of gas to the demand centres
based in the west and north of the country
has assumed greater importance. Reliance
Gas Transportation Infrastructure Limited
The Asian Development Bank (ADB)-backed
(RGTIL) has implemented the 1385 Km
1,680-km long pipeline is likely to connect
East West Gas Pipeline to carry 80
the gas fields in Turkmenistan to India. The
mnscmd (million standard cubic metres per
pipeline traverses through Afghanistan and
day ) of natural gas from Kakinada in
Pakistan (including 145 km in Turkmenistan,
Andhra Pradesh to Bharuch in Gujarat and
735 km in Afghanistan and 800 km in
traverses through the states of Karnataka
Pakistan upto the India border). It would
and Maharashtra and it has further planned
supply 38 mmscmd of gas to India.
Gas transmission
Transnational pipelines
1
3
2
1
4
Iran-Pakistan-India pipeline
Turkmenistan-Afghanistan-Pakistan-India
(TAPI) pipeline
GAS TRANSMISSION AND DISTRIBUTION
1 RGTIL website, September 2010
2 PNGRB
3 Wikipedia, September 2010 (Iran-Pakistan-India Pipeline)
4 Times of India, July 2010 (IPI Pipeline: India to resume talks
with Iran)
1 MoPNG
2005 2006 2007 2008 2009 2010 2011 2012 2013
M
M
T
P
A
300
250
200
150
100
50
Capacity
127
241
05 06
India, with its current capacity of around the small refineries in the North-east,
180 million tones per annum (mtpa) is which are land-locked and possess a sub-
poised to emerge as a major refining hub, optimal economic size. Similarly major
with considerable capacity additions being technology upgrades are necessary to be
planned over the next few years . Of a total able to produce output from relatively
of 20 refineries in India, public sector units lower grade crude which reduces sourcing
have a capacity of 107.5 MMTPA while the costs thus increasing margins as well as
private sector players comprising of RIL meet new fuel specification standards.
and Essar have a capacity of close to 72
Capacity additions as well as Greenfield
MMTPA.
refineries announced by public and private
sector players indicate that almost 40-50
MMTPA of additional refining capacity will
be added by 2013-14 bringing the total
available capacity to nearly 240 MMTPA. In
The country has further large expansions
the medium term this surplus supply
planned and is aiming to emerge as a
indicates that there may be reservations
refining hub even as global refining markets
against making more investments in the
have tightened with the closure of small
refinery space till the time domestic
refineries in North America and Europe
demand catches up.
mainly due to challenges in investing in
cleaner fuels and high compliance costs. In
addition, permits for Greenfield refineries
are hard to obtain in these countries due to
the environmental concerns. Therefore,
capacity addition is primarily coming from
emerging economies like India, China and
some Middle Eastern countries .
Many of the private sector refineries are
focusing on the export market. As far as
the PSU refineries are concerned, concerns
have been expressed over the viability of
1
Status of the sector
Outlook for refining sector
Regardless of above, some players are
mulling over setting up inland refineries
close to demand centers thus reducing the
cost of distribution (e.g. BPCL plans to set
up a 12 mtpa refinery in Allahabad). This may
result in substituting products of other
refineries and hence creating pressure on
the coastal refineries to look at exports.
REFINING IN INDIA
The transmission and distribution segment to construct four new cross country
of the natural gas sector remains relatively pipelines . Gujarat State Petronet Ltd.
The IPI Gas Pipeline Project has been
under-developed, but this is likely to change (GSPL), a GSPC Group company involved in
conceived as a tripartite arrangement
in the medium term. gas transmission arm also has an extensive
between Iran, Pakistan and India, with the
network of around 2400 Km in Gujarat,and
volumes being divided between the two
recently, PNGRB has completed the
importing countries of India and Pakistan.
bidding process for three new pipelines
The pipeline is estimated to cost around
too.
USD 7.5 billion and is expected to be 2300
The gas transmission domain in India has
The existing pipeline capacity of ~220 Km in length .
been dominated by the GAIL India Limited.
mmscmd is expected to increase to ~ 660
It operates the Hazira Vijaipur
Although some progress was made,
mmscmd in the medium term . This
Jagdishpur (HVJ) , Dadri Vijaipur Pipeline
several outstanding issues remained.
expansion in infrastructure would lead to
(total 3452 Km long), and a few other
Issues around safe delivery of gas through
better gas availability, better tapping of
pipelines, connecting the LNG terminal at
Pakistan and price of gas lead to the talks
demand and thus in turn increase the
Dahej to Vijaipur and Uran and the power
being suspended in 2008. In April 2010
natural gas demand.
plant at Dabhol to Panvel .
some progress was made when India
proposed to discuss the pipeline with Iran .
With the recent domestic gas finds in the
KG basin off the East coast of India the
transmission of gas to the demand centres
based in the west and north of the country
has assumed greater importance. Reliance
Gas Transportation Infrastructure Limited
The Asian Development Bank (ADB)-backed
(RGTIL) has implemented the 1385 Km
1,680-km long pipeline is likely to connect
East West Gas Pipeline to carry 80
the gas fields in Turkmenistan to India. The
mnscmd (million standard cubic metres per
pipeline traverses through Afghanistan and
day ) of natural gas from Kakinada in
Pakistan (including 145 km in Turkmenistan,
Andhra Pradesh to Bharuch in Gujarat and
735 km in Afghanistan and 800 km in
traverses through the states of Karnataka
Pakistan upto the India border). It would
and Maharashtra and it has further planned
supply 38 mmscmd of gas to India.
Gas transmission
Transnational pipelines
1
3
2
1
4
Iran-Pakistan-India pipeline
Turkmenistan-Afghanistan-Pakistan-India
(TAPI) pipeline
GAS TRANSMISSION AND DISTRIBUTION
1 RGTIL website, September 2010
2 PNGRB
3 Wikipedia, September 2010 (Iran-Pakistan-India Pipeline)
4 Times of India, July 2010 (IPI Pipeline: India to resume talks
with Iran)
1 MoPNG
2005 2006 2007 2008 2009 2010 2011 2012 2013
M
M
T
P
A
300
250
200
150
100
50
Capacity
127
241
05 06
Myanmar-Bangladesh-India pipeline PNGRB has already completed two rounds
of bidding for awarding licenses for city gas
A 1,575 km long pipeline connecting the
distribution for various cities. These
Shwe field in the A-1 block in Myanmar, in
The main driver for the development of gas licenses are awarded through an open
which both ONGC Videsh and GAIL own a
transmission and CGD shall be the competitive bidding process, with there
stake, was considered to bring gas to India,
availability of requisite volumes of gas. being a level playing field for both domestic
while passing through Bangladesh. In
With the development of RIL's KG Basin and foreign entities. PNGRB has also called
February 2010 Bangladesh lifted its
and other fields, the opportunity could be for the third and the fourth round of bids for
opposition to a gas pipeline linking India
available; what now matters is whether the the states of Gujarat, Punjab, Haryana and
and Myanmar and running through its
CGD license-holders can obtain gas West Bengal (Round 3) and Kerala, Andhra
territory, paving the way for the
supplies and develop gas distribution Pradesh, Maharashtra , Madhya Pradesh
establishment of a regional gas grid .
infrastructure. and Uttar Pradesh (Round 4).
The CGD space is seeing bidding from not
only the firms already in the gas
transportation and distribution business but
The City Gas Distribution (CGD) space in
also other firms which would like to
India has been steadily increasing with
diversify into this sector. EPC contractors,
many cities being added into the fold after
engineering consultants, foreign gas
New Delhi, Mumbai and others in Gujarat.
majors, manufacturing firms, infrastructure
The notification of Section 16 of the
players and others have shown interest in
PNGRB Act in March 2010 allowing PNGRB
this sector.
to grant licenses for CGD is likely to
In addition to the above, stricter
quicken the pace of rollout of CGD services
environmental norms around urban centres
in cities and geographical areas. The
and increasing urbanisation is likely to
government is also playing its part. It has
increase the demand for piped natural gas
allocated 3.39 mmscmd of gas on firm and
as a clean and efficient fuel. Going forward
fall back basis from RILs D-6 block in the
more cities are likely to have access to
KG Basin .
local gas distribution networks.
5
6
Outlook for transformation and
distribution
City gas distribution
COAL BED METHANE
In order to exploit India's vast coal reserves
and the methane gas trapped in coal seams,
the government formulated a Policy for Coal
Bed Methane (CBM) in 1997. The MoPNG
(Ministry of Petroleum and Natural Gas) was
to be the administrative ministry with the
DGH (Directorate General of Hydrocarbons)
as the implementing agency and
accordingly, a MoU was signed between the
MoPNG and Ministry of Coal in September
1997. The first round of CBM was held in
2001, on the lines of NELP, with competitive
bidding deciding the award of acreages. So
far four rounds of bidding have been
completed and 33 blocks have been
awarded.
The potential of CBM as a primary energy
resource in India is being established and
increasingly efforts are being made to
commercialise the same. The proven CBM
reserves in India are equivalent to the Oil
and Natural gas reserves in India . At USD
4.2/mmbtu it translates to a USD 130 billion
opportunity.
1
Major Terms and conditions offered to the
bidders for Round four
Fiscal stability provision in the contract
No govt. participating interest
No up-front payment
No signature bonus required
No customs duty on imports
Freedom to sell gas domestically at
market-determined rates.
This sector has attracted public sector
enterprises ONGC and GAIL, domestic
private sector companies Great Eastern
Energy Corporation (GEECL), Reliance
Energy Ltd, Reliance Natural Resources Ltd,
Essar and foreign players Arrow Energy,
BP Exploration, GeoPetrol etc . Some of the
companies have also entered into
commercial long term Gas Sale Agreement.
The policy regime is also favourable to
exploration and commercialisation of the
CBM opportunity in India.
2
5 Livemint.com, February 2010 (Bangladesh agrees to tri-
nation gas pipeline)
6 Infraline and Secondary Research
1 Integrated Energy Policy, Report of Expert Committee,
Planning Commission, August, 2006 pipeline)
2 KPMG Research
B
t
o
e
Coal
2.0
4.0
6.0
8.0
10.0
12.0
14.0
13.49
1.22
0.79
1.10
0.77
Lignite Oil Gas CBM
07 08
Myanmar-Bangladesh-India pipeline PNGRB has already completed two rounds
of bidding for awarding licenses for city gas
A 1,575 km long pipeline connecting the
distribution for various cities. These
Shwe field in the A-1 block in Myanmar, in
The main driver for the development of gas licenses are awarded through an open
which both ONGC Videsh and GAIL own a
transmission and CGD shall be the competitive bidding process, with there
stake, was considered to bring gas to India,
availability of requisite volumes of gas. being a level playing field for both domestic
while passing through Bangladesh. In
With the development of RIL's KG Basin and foreign entities. PNGRB has also called
February 2010 Bangladesh lifted its
and other fields, the opportunity could be for the third and the fourth round of bids for
opposition to a gas pipeline linking India
available; what now matters is whether the the states of Gujarat, Punjab, Haryana and
and Myanmar and running through its
CGD license-holders can obtain gas West Bengal (Round 3) and Kerala, Andhra
territory, paving the way for the
supplies and develop gas distribution Pradesh, Maharashtra , Madhya Pradesh
establishment of a regional gas grid .
infrastructure. and Uttar Pradesh (Round 4).
The CGD space is seeing bidding from not
only the firms already in the gas
transportation and distribution business but
The City Gas Distribution (CGD) space in
also other firms which would like to
India has been steadily increasing with
diversify into this sector. EPC contractors,
many cities being added into the fold after
engineering consultants, foreign gas
New Delhi, Mumbai and others in Gujarat.
majors, manufacturing firms, infrastructure
The notification of Section 16 of the
players and others have shown interest in
PNGRB Act in March 2010 allowing PNGRB
this sector.
to grant licenses for CGD is likely to
In addition to the above, stricter
quicken the pace of rollout of CGD services
environmental norms around urban centres
in cities and geographical areas. The
and increasing urbanisation is likely to
government is also playing its part. It has
increase the demand for piped natural gas
allocated 3.39 mmscmd of gas on firm and
as a clean and efficient fuel. Going forward
fall back basis from RILs D-6 block in the
more cities are likely to have access to
KG Basin .
local gas distribution networks.
5
6
Outlook for transformation and
distribution
City gas distribution
COAL BED METHANE
In order to exploit India's vast coal reserves
and the methane gas trapped in coal seams,
the government formulated a Policy for Coal
Bed Methane (CBM) in 1997. The MoPNG
(Ministry of Petroleum and Natural Gas) was
to be the administrative ministry with the
DGH (Directorate General of Hydrocarbons)
as the implementing agency and
accordingly, a MoU was signed between the
MoPNG and Ministry of Coal in September
1997. The first round of CBM was held in
2001, on the lines of NELP, with competitive
bidding deciding the award of acreages. So
far four rounds of bidding have been
completed and 33 blocks have been
awarded.
The potential of CBM as a primary energy
resource in India is being established and
increasingly efforts are being made to
commercialise the same. The proven CBM
reserves in India are equivalent to the Oil
and Natural gas reserves in India . At USD
4.2/mmbtu it translates to a USD 130 billion
opportunity.
1
Major Terms and conditions offered to the
bidders for Round four
Fiscal stability provision in the contract
No govt. participating interest
No up-front payment
No signature bonus required
No customs duty on imports
Freedom to sell gas domestically at
market-determined rates.
This sector has attracted public sector
enterprises ONGC and GAIL, domestic
private sector companies Great Eastern
Energy Corporation (GEECL), Reliance
Energy Ltd, Reliance Natural Resources Ltd,
Essar and foreign players Arrow Energy,
BP Exploration, GeoPetrol etc . Some of the
companies have also entered into
commercial long term Gas Sale Agreement.
The policy regime is also favourable to
exploration and commercialisation of the
CBM opportunity in India.
2
5 Livemint.com, February 2010 (Bangladesh agrees to tri-
nation gas pipeline)
6 Infraline and Secondary Research
1 Integrated Energy Policy, Report of Expert Committee,
Planning Commission, August, 2006 pipeline)
2 KPMG Research
B
t
o
e
Coal
2.0
4.0
6.0
8.0
10.0
12.0
14.0
13.49
1.22
0.79
1.10
0.77
Lignite Oil Gas CBM
07 08
Liquefied Natural Gas (LNG) trade has The LNG imports in India in 2008-09 were operational LNG terminals both located in
picked up significantly in recent years estimated at 30 mmscmd. This constituted Gujarat, one each in Dahej and Hazira, with
owing to increasing demand, declining about 29 percent of total natural gas supply total capacity of 12.5 MTPA .
domestic natural gas resources in gas- in India in 2008-09. Out of total LNG
Besides the existing LNG terminals at
consuming countries and efforts of gas- imports, 63 percent was imported on firm
Dahej and Hazira and their expansion plans,
producing countries to commercialise their contract basis while 37 percent was
few other LNG terminals of combined
resources. The LNG market has also seen imported on the spot basis .
capacity of 21 MTPA are planned to be
key developments in the past few years
The historic demand-supply gap of natural added in India over the next few years.
including declining capital costs of LNG
gas has provided an impetus in setting up
liquefaction plants and more flexibility in
LNG terminals. Currently India has two
tenure and pricing of LNG Contracts
1
2
LIQUEFIED NATURAL GAS
Overall, India is expected to have LNG liquification, shipping and re-gassification. segments like Industrial consumers,
terminals of ~20 MTPA capacity by 2012 This leads to higher landed price for LNG to Petrochemical plants and CGD. The
and ~38.5 MTPA capacity once the consumers than most of the alternative proposed pooled pricing mechanism may
operations in all the proposed terminals fuels. also help in boosting the LNG demand in
commence. other sectors as well.
One of the key drivers to improve LNG
Acceptability of natural gas as a fuel is demand in domestic market will be India's
dependent on its price vis--vis alternate ability to source long term LNG at
fuels. LNG is more expensive than competitive prices. At current prices, LNG
domestic gas due to the additional cost of may be cost efficient to few consumer
Sr. No. Terminal Promoter Capacity (MTPA) Expected timelines
1) Dabhol Ratnagiri Gas and Power Projects Ltd 5 2012
2) Kochi PLL 2.5 in Phase I To be increased to 5 beyond 2012
3) Mundra Adani Group and GSPC 6 2014
4) Ennore IOCL 2.5 2014
5) Mangalore ONGC 2.5 2014
Shale gas is natural gas produced from attention of a large number of nations like first of its kind in India. In order to truly
shale, which are fine-grained sedimentary Canada, Australia, China, Sweden, exploit the potential of shale gas in the
rocks formed by compaction of clay and Hungary, Germany, UK and India. country the following needs to be
other minerals. The shale formations act as expedited:
In the Indian context, although more
both reservoir as well as source rock. Shale
studies are required to assess the true Technical assessment of shale deposits
formations have low matrix permeability
potential of our geological basins, and identification of possible gas
and to produce gas in commercial
prospects of large shale deposits exists producing areas
quantities it requires fractures to improve
across the Cambay basin, Assam Arakan
Comprehensive policy on shale gas
the permeability. Similarly, horizontal drilling
basin, KG basin and Cauvery basin. India's
exploration, development and
is often used with shale gas to create
current policy on exploration doesn't cover
production
maximum surface area in contact with the
unconventional resources and hence a new
shale and hence improve gas recovery.
Participation from firms with technology
policy especially for shale gas may be
and infrastructure to bring down costs
The interest in shale gas really picked up required in the future. The fiscal and
of development and production.
during 2005-06 when the Henry Hub prices contractual regime for such exploration is
were at an all time high . Over the last also something the government needs to
Shale gas definitely is an opportunity in the
decade, the costs of drilling and fracturing look at as the option could be between a
near future and, if large resource bases are
techniques have come down substantially royalty regime (like in US) and a Production
established, it could be a big boost to a
and now shale gas is able to compete even Sharing Contracts (conventional oil and gas
country which needs energy security for a
at prevailing lower gas prices. This has resources in India) . The government plans
fast developing economy.
resulted in huge negative impact on to launch the first round of Shale gas
imported LNG in the US and severe under bidding in mid 2011.
utilisation of the LNG regasification
In anticipation of the above, some of the
terminals.
major players have taken a keen interest in
This whole cycle of developing cost shale gas. Reliance has already acquired
efficient technologies to bring down the stakes in Marcellus shale and Eagle Ford
cost of monetising unconventional acreage in US . ONGC is carrying out a pilot
resources in the US has captured the project in the Damodar basin, which is the
1
1
1
A NOTE ON SHALE GAS
1 Crisil
2 Hazira and Dahej Terminal Website
1 Oil and Gas journal 2010
09 10
Liquefied Natural Gas (LNG) trade has The LNG imports in India in 2008-09 were operational LNG terminals both located in
picked up significantly in recent years estimated at 30 mmscmd. This constituted Gujarat, one each in Dahej and Hazira, with
owing to increasing demand, declining about 29 percent of total natural gas supply total capacity of 12.5 MTPA .
domestic natural gas resources in gas- in India in 2008-09. Out of total LNG
Besides the existing LNG terminals at
consuming countries and efforts of gas- imports, 63 percent was imported on firm
Dahej and Hazira and their expansion plans,
producing countries to commercialise their contract basis while 37 percent was
few other LNG terminals of combined
resources. The LNG market has also seen imported on the spot basis .
capacity of 21 MTPA are planned to be
key developments in the past few years
The historic demand-supply gap of natural added in India over the next few years.
including declining capital costs of LNG
gas has provided an impetus in setting up
liquefaction plants and more flexibility in
LNG terminals. Currently India has two
tenure and pricing of LNG Contracts
1
2
LIQUEFIED NATURAL GAS
Overall, India is expected to have LNG liquification, shipping and re-gassification. segments like Industrial consumers,
terminals of ~20 MTPA capacity by 2012 This leads to higher landed price for LNG to Petrochemical plants and CGD. The
and ~38.5 MTPA capacity once the consumers than most of the alternative proposed pooled pricing mechanism may
operations in all the proposed terminals fuels. also help in boosting the LNG demand in
commence. other sectors as well.
One of the key drivers to improve LNG
Acceptability of natural gas as a fuel is demand in domestic market will be India's
dependent on its price vis--vis alternate ability to source long term LNG at
fuels. LNG is more expensive than competitive prices. At current prices, LNG
domestic gas due to the additional cost of may be cost efficient to few consumer
Sr. No. Terminal Promoter Capacity (MTPA) Expected timelines
1) Dabhol Ratnagiri Gas and Power Projects Ltd 5 2012
2) Kochi PLL 2.5 in Phase I To be increased to 5 beyond 2012
3) Mundra Adani Group and GSPC 6 2014
4) Ennore IOCL 2.5 2014
5) Mangalore ONGC 2.5 2014
Shale gas is natural gas produced from attention of a large number of nations like first of its kind in India. In order to truly
shale, which are fine-grained sedimentary Canada, Australia, China, Sweden, exploit the potential of shale gas in the
rocks formed by compaction of clay and Hungary, Germany, UK and India. country the following needs to be
other minerals. The shale formations act as expedited:
In the Indian context, although more
both reservoir as well as source rock. Shale
studies are required to assess the true Technical assessment of shale deposits
formations have low matrix permeability
potential of our geological basins, and identification of possible gas
and to produce gas in commercial
prospects of large shale deposits exists producing areas
quantities it requires fractures to improve
across the Cambay basin, Assam Arakan
Comprehensive policy on shale gas
the permeability. Similarly, horizontal drilling
basin, KG basin and Cauvery basin. India's
exploration, development and
is often used with shale gas to create
current policy on exploration doesn't cover
production
maximum surface area in contact with the
unconventional resources and hence a new
shale and hence improve gas recovery.
Participation from firms with technology
policy especially for shale gas may be
and infrastructure to bring down costs
The interest in shale gas really picked up required in the future. The fiscal and
of development and production.
during 2005-06 when the Henry Hub prices contractual regime for such exploration is
were at an all time high . Over the last also something the government needs to
Shale gas definitely is an opportunity in the
decade, the costs of drilling and fracturing look at as the option could be between a
near future and, if large resource bases are
techniques have come down substantially royalty regime (like in US) and a Production
established, it could be a big boost to a
and now shale gas is able to compete even Sharing Contracts (conventional oil and gas
country which needs energy security for a
at prevailing lower gas prices. This has resources in India) . The government plans
fast developing economy.
resulted in huge negative impact on to launch the first round of Shale gas
imported LNG in the US and severe under bidding in mid 2011.
utilisation of the LNG regasification
In anticipation of the above, some of the
terminals.
major players have taken a keen interest in
This whole cycle of developing cost shale gas. Reliance has already acquired
efficient technologies to bring down the stakes in Marcellus shale and Eagle Ford
cost of monetising unconventional acreage in US . ONGC is carrying out a pilot
resources in the US has captured the project in the Damodar basin, which is the
1
1
1
A NOTE ON SHALE GAS
1 Crisil
2 Hazira and Dahej Terminal Website
1 Oil and Gas journal 2010
09 10
Indian private sector was not allowed in the effects on the economy given that it is the market, they have found it difficult to
retailing of fuel up to 2002. Subsequently, main fuel for the movement of goods in sustain operations given the price
the government decided to open the sector India. regulation in place.
to private participation subject to certain
In addition to this, the government also However, there are indications that private
restrictions. The government, with its aim
announced a hike in prices of Petrol (MS), sector interest has renewed in this space.
of insulating the Indian consumer from
Diesel (HSD), Kerosene and LPG. Petrol Recent media reports have shown that
volatility of crude oil prices in the
currently accounts for only a tenth of all Shell India, the domestic arm of Royal
international markets, has been subsidising
petroleum products consumed where as Dutch Shell Plc, plans to have 200 fuel
end-user prices of HSD, MS, SKO and LPG.
diesel accounts for nearly one-third of all outlets by the end of FY 09-10 .
This has translated into a large subsidy
products consumed within India.
The Indian fuel market does hold some
being given to the domestic consumer,
Although this is a commendatory step, promise, more so if the market forces are
with the burden being shared between the
even after this decision, the government allowed free reign as indicated by recent
oil marketing firms, the government (which
and the public sector oil companies are measures. Another opportunity lies in
has been issuing oil bonds to the PSU
expected to bear an estimated under- exploiting the potential of non-fuel retail at
marketers to compensate them for their
recovery of about INR 53,000 crore as the existing fuel outlets, particularly given
under-recoveries) and the upstream PSU
opposed to INR 74,000 crore in revenues in the prime location of fuel outlets at metros.
firms of ONGC and OIL.
2010-11 fiscal. Convenience shopping and the
In June 2010, a major step was taken in the
establishment of ATMs provide an
area of moving towards market determined
opportunity. Fuel retailing outlets with such
pricing. The government through its
additional facilities are also likely to invest
Empowered Group of Ministers (EGoM) led
in modernisation and branding initiatives,
by the Finance Minister of India, Pranab
The fuel retail market in India continues to
with 'Club HP' of HPCL being one such
Mukherjee decided to give a free hand to
be dominated by PSU firms with Indian Oil
initiative.
oil companies to determine petrol (MS)
boasting of an approximately 50 percent
prices in line with the market price
market share, while the other public sector
following the Kirit Parikh Committee
fuel marketers HPCL and BPCL have five
recommendations . Diesel prices, however, and approximately 25 percent market share
were not allowed the same freedom, each. Although the private sector firms of
arguably, due to the significant inflationary RIL, Essar and Shell have entered the
1
1
Outlook for fuel retaling
FUEL RETAILING IN INDIA
Direct tax
4
1
2
3
Taxation of a person depends upon its MAT is applicable to a company, if tax
India has a federal level tax structure
legal status (a person being an payable by the company on its total
governed by the provisions of the Income
individual, firm, company, etc.) and income, as computed under the normal
Tax Act, 1961. It has a network of treaties
residential status provisions, is less than 18 percent of its
with over 90 countries across the globe to
book profits
avoid double taxation of income. In wake of
Indian tax system recognises an entity
economic reforms, the taxation system has
level taxation. In computing 'book profits' for MAT
undergone tremendous changes in the past
purposes, certain positive and negative
ten years. The tax rates have been
adjustments are made to the net profit
rationalised and compared favourably with
as shown in the books of account
many other countries. Further, over the
For Indian income tax purposes, a
Carry forward and set off of MAT is
period of time, the tax laws have also been
corporation income comprises income
available for 10 subsequent years.
simplified to ensure better compliances.
from business or property, capital gains
The brief overview of India taxation system
realised on any disposition of
is outlined below:
corporations capital assets and residual
income arising from non-business
income.
A resident in India is liable to tax on its
world wide income irrespective of the
source of income
Domestic companies are subject to tax
at the rate of 30 percent whereas
A non resident in India is liable to tax on
foreign companies are subject to tax at
income received or deemed to be
the rate of 40 percent
received in India or any income accruing
or arising or deemed to be accruing or
The tax rate is enhanced by surcharge &
arising in India.
education cess as may be applicable to
the tax payer.
Scheme of taxation Minimum alternate tax (MAT)
Corporate income-tax
Scope of total income
Corporate tax rate
OVERVIEW OF THE INDIAN TAXATION SYSTEM
1 Indian Income-tax Act, 1961
2 Section 5 of Indian Income-tax Act, 1961
3 Finance Act, 2010
4 Section 115JB of Indian Income-tax Act, 1961
1 Business Standard
11 12
Indian private sector was not allowed in the effects on the economy given that it is the market, they have found it difficult to
retailing of fuel up to 2002. Subsequently, main fuel for the movement of goods in sustain operations given the price
the government decided to open the sector India. regulation in place.
to private participation subject to certain
In addition to this, the government also However, there are indications that private
restrictions. The government, with its aim
announced a hike in prices of Petrol (MS), sector interest has renewed in this space.
of insulating the Indian consumer from
Diesel (HSD), Kerosene and LPG. Petrol Recent media reports have shown that
volatility of crude oil prices in the
currently accounts for only a tenth of all Shell India, the domestic arm of Royal
international markets, has been subsidising
petroleum products consumed where as Dutch Shell Plc, plans to have 200 fuel
end-user prices of HSD, MS, SKO and LPG.
diesel accounts for nearly one-third of all outlets by the end of FY 09-10 .
This has translated into a large subsidy
products consumed within India.
The Indian fuel market does hold some
being given to the domestic consumer,
Although this is a commendatory step, promise, more so if the market forces are
with the burden being shared between the
even after this decision, the government allowed free reign as indicated by recent
oil marketing firms, the government (which
and the public sector oil companies are measures. Another opportunity lies in
has been issuing oil bonds to the PSU
expected to bear an estimated under- exploiting the potential of non-fuel retail at
marketers to compensate them for their
recovery of about INR 53,000 crore as the existing fuel outlets, particularly given
under-recoveries) and the upstream PSU
opposed to INR 74,000 crore in revenues in the prime location of fuel outlets at metros.
firms of ONGC and OIL.
2010-11 fiscal. Convenience shopping and the
In June 2010, a major step was taken in the
establishment of ATMs provide an
area of moving towards market determined
opportunity. Fuel retailing outlets with such
pricing. The government through its
additional facilities are also likely to invest
Empowered Group of Ministers (EGoM) led
in modernisation and branding initiatives,
by the Finance Minister of India, Pranab
The fuel retail market in India continues to
with 'Club HP' of HPCL being one such
Mukherjee decided to give a free hand to
be dominated by PSU firms with Indian Oil
initiative.
oil companies to determine petrol (MS)
boasting of an approximately 50 percent
prices in line with the market price
market share, while the other public sector
following the Kirit Parikh Committee
fuel marketers HPCL and BPCL have five
recommendations . Diesel prices, however, and approximately 25 percent market share
were not allowed the same freedom, each. Although the private sector firms of
arguably, due to the significant inflationary RIL, Essar and Shell have entered the
1
1
Outlook for fuel retaling
FUEL RETAILING IN INDIA
Direct tax
4
1
2
3
Taxation of a person depends upon its MAT is applicable to a company, if tax
India has a federal level tax structure
legal status (a person being an payable by the company on its total
governed by the provisions of the Income
individual, firm, company, etc.) and income, as computed under the normal
Tax Act, 1961. It has a network of treaties
residential status provisions, is less than 18 percent of its
with over 90 countries across the globe to
book profits
avoid double taxation of income. In wake of
Indian tax system recognises an entity
economic reforms, the taxation system has
level taxation. In computing 'book profits' for MAT
undergone tremendous changes in the past
purposes, certain positive and negative
ten years. The tax rates have been
adjustments are made to the net profit
rationalised and compared favourably with
as shown in the books of account
many other countries. Further, over the
For Indian income tax purposes, a
Carry forward and set off of MAT is
period of time, the tax laws have also been
corporation income comprises income
available for 10 subsequent years.
simplified to ensure better compliances.
from business or property, capital gains
The brief overview of India taxation system
realised on any disposition of
is outlined below:
corporations capital assets and residual
income arising from non-business
income.
A resident in India is liable to tax on its
world wide income irrespective of the
source of income
Domestic companies are subject to tax
at the rate of 30 percent whereas
A non resident in India is liable to tax on
foreign companies are subject to tax at
income received or deemed to be
the rate of 40 percent
received in India or any income accruing
or arising or deemed to be accruing or
The tax rate is enhanced by surcharge &
arising in India.
education cess as may be applicable to
the tax payer.
Scheme of taxation Minimum alternate tax (MAT)
Corporate income-tax
Scope of total income
Corporate tax rate
OVERVIEW OF THE INDIAN TAXATION SYSTEM
1 Indian Income-tax Act, 1961
2 Section 5 of Indian Income-tax Act, 1961
3 Finance Act, 2010
4 Section 115JB of Indian Income-tax Act, 1961
1 Business Standard
11 12
Key indirect taxes
12

VAT legislation Custom duty
Service tax
Excise duty
Since its inception in April 2005, VAT Custom Duty is payable on import of
Service tax is applicable on identified
has been implemented in almost all goods/ equipments into India
services provided or received in India
Indian States and Union Territories with
It is levied as per rates specified in the
Current scope of taxable services is
exception of Andaman and Nicobar and
Customs Tariff laws depending upon the
very wide and covers a vast majority of
Lakshadweep
prescribed HSN classification
service categories
VAT is a multi-point taxation system
Peak rate of Customs Duty is 10
Mining, Survey & exploration of
entailing a VAT at every point of sale and
percent.
minerals, Transportation, , scientific and
sale includes transfer of right to use
technical consultancy, construction, IPR,
goods and transfer of property in goods
insurance, manpower supply,
in the course of execution of works
telecommunication, online database
contracts
access, training, business auxiliary
Generally levied at the rate of 10
Dealers are allowed to avail credit of
services are some of the key categories
percent plus education cess of 3
input VAT paid on inputs and capital
percent on manufacture of goods
Service tax is applicable at 10.30
goods for set-off against output VAT/
percent
Payable at the time of removal of goods
CST
from factory gate
Export of services are not subject to
Common rate of tax adopted across all
service tax - export determined as per
Excise duty paid by the buyer to the
States with rates generally ranging from
prescribed rules
seller is available as input credit and may
4percent to 15percent for different
be utilized to set-off the buyers output
categories of goods. Also, some
Import of service liable to service tax in
Excise duty/ Service tax liability
category of goods have been declared
hands of recipient in India - import
exempt from levy of State VAT
determined as per prescribed rules.
Interstate sale of goods is subject to a
CST levy and currently applicable at 2%
subject to conditions. CST is a non-
creditable levy.
Dividend distribution tax (DDT)
5

DDT is levied at the rate of 16.609
percent on the amount of dividend
declared, distributed or paid by an Indian
company
DDT is payable in addition to regular
corporate income tax.
Taxation of individuals
10

Taxability of an individual is dependent on
his/her residential status
The residential status of an individual is
determined on the basis of his/her
physical presence in India
Based on the satisfaction of certain
conditions, an individual could be:
- Resident and ordinarily resident (ROR)
- Resident but not ordinarily resident
(RNOR)
- Non-resident (NR)
Income of non-resident is generally
computed in the same manner as the
resident.
Taxability
Residential Status
Worldwide income Indian income
Received in India Received outside India Received in India Received outside India
ROR
RNOR*
NR
Tax rates applicable for the financial year
11
2010-2011
Taxable Income Rate percent
Upto 160000* Nil
160,001 - 500,000 10%
500,001 - 800,000 20%
Above 800,001 30%
Transfer pricing regulations
7

India has a Transfer Pricing regime under
which international transactions between
associated enterprises are required to be
computed with regard to their arm's
length price. These regulations also apply
to cost sharing arrangements
Transfer Pricing Regulations prescribes
the information and documents which
are required to be maintained by every
person who has entered into an
international transaction with its
associated enterprises.
Other features
8
9
Loss carry forward permitted upto eight
years, however, depreciation can be
carried forward indefinitely
No tax on remittance of profits by foreign
companies (project office/branch office to
head office) .
* Income derived by a RNOR from a business controlled or profession set up in India shall be taxable in India
* In the case of resident woman below the age of 65
years the basic exemption limit is 190,000
* In case of resident individual of the age of 65 or
above the basic exemption limit is 240,000
* Surcharge is not applicable
* Education cess is applicable at the rate of 3
percent on income tax
Corporate tax rates at glance
6
Rates applicable for the financial year 2010-2011 are
as follows:
Resources
Domestic
Corporation
Foreign
Corporation
Corporate tax rate 33.22%* 42.23%*
Minimum Alternate tax 19.93%* 19.0035%*
Dividend Distribution tax 16.609% N.A.
Branch Profit Tax NA NA
*In case net income exceeds 10 million
5 Section 115-O of Indian Income-tax Act, 1961
6 Finance Act 2010
7 Chapter X of Indian Income-tax Act, 1961
8 Section 72 and Section 32 of Indian Income-tax Act, 1961
9 Indian Income-tax Act, 1961 and the Exchange Control /
Regulatory provisions
10Section 6 of Indian Income-tax Act, 1961
11Finance Act 2010
12Comprises of relevant provisions of Finance Act, 1994, The
Customs Act, 1962 and State-specific VAT legislations, as
amended from time to time, the rules and regulations
thereunder
13 14
Key indirect taxes
12

VAT legislation Custom duty
Service tax
Excise duty
Since its inception in April 2005, VAT Custom Duty is payable on import of
Service tax is applicable on identified
has been implemented in almost all goods/ equipments into India
services provided or received in India
Indian States and Union Territories with
It is levied as per rates specified in the
Current scope of taxable services is
exception of Andaman and Nicobar and
Customs Tariff laws depending upon the
very wide and covers a vast majority of
Lakshadweep
prescribed HSN classification
service categories
VAT is a multi-point taxation system
Peak rate of Customs Duty is 10
Mining, Survey & exploration of
entailing a VAT at every point of sale and
percent.
minerals, Transportation, , scientific and
sale includes transfer of right to use
technical consultancy, construction, IPR,
goods and transfer of property in goods
insurance, manpower supply,
in the course of execution of works
telecommunication, online database
contracts
access, training, business auxiliary
Generally levied at the rate of 10
Dealers are allowed to avail credit of
services are some of the key categories
percent plus education cess of 3
input VAT paid on inputs and capital
percent on manufacture of goods
Service tax is applicable at 10.30
goods for set-off against output VAT/
percent
Payable at the time of removal of goods
CST
from factory gate
Export of services are not subject to
Common rate of tax adopted across all
service tax - export determined as per
Excise duty paid by the buyer to the
States with rates generally ranging from
prescribed rules
seller is available as input credit and may
4percent to 15percent for different
be utilized to set-off the buyers output
categories of goods. Also, some
Import of service liable to service tax in
Excise duty/ Service tax liability
category of goods have been declared
hands of recipient in India - import
exempt from levy of State VAT
determined as per prescribed rules.
Interstate sale of goods is subject to a
CST levy and currently applicable at 2%
subject to conditions. CST is a non-
creditable levy.
Dividend distribution tax (DDT)
5

DDT is levied at the rate of 16.609
percent on the amount of dividend
declared, distributed or paid by an Indian
company
DDT is payable in addition to regular
corporate income tax.
Taxation of individuals
10

Taxability of an individual is dependent on
his/her residential status
The residential status of an individual is
determined on the basis of his/her
physical presence in India
Based on the satisfaction of certain
conditions, an individual could be:
- Resident and ordinarily resident (ROR)
- Resident but not ordinarily resident
(RNOR)
- Non-resident (NR)
Income of non-resident is generally
computed in the same manner as the
resident.
Taxability
Residential Status
Worldwide income Indian income
Received in India Received outside India Received in India Received outside India
ROR
RNOR*
NR
Tax rates applicable for the financial year
11
2010-2011
Taxable Income Rate percent
Upto 160000* Nil
160,001 - 500,000 10%
500,001 - 800,000 20%
Above 800,001 30%
Transfer pricing regulations
7

India has a Transfer Pricing regime under
which international transactions between
associated enterprises are required to be
computed with regard to their arm's
length price. These regulations also apply
to cost sharing arrangements
Transfer Pricing Regulations prescribes
the information and documents which
are required to be maintained by every
person who has entered into an
international transaction with its
associated enterprises.
Other features
8
9
Loss carry forward permitted upto eight
years, however, depreciation can be
carried forward indefinitely
No tax on remittance of profits by foreign
companies (project office/branch office to
head office) .
* Income derived by a RNOR from a business controlled or profession set up in India shall be taxable in India
* In the case of resident woman below the age of 65
years the basic exemption limit is 190,000
* In case of resident individual of the age of 65 or
above the basic exemption limit is 240,000
* Surcharge is not applicable
* Education cess is applicable at the rate of 3
percent on income tax
Corporate tax rates at glance
6
Rates applicable for the financial year 2010-2011 are
as follows:
Resources
Domestic
Corporation
Foreign
Corporation
Corporate tax rate 33.22%* 42.23%*
Minimum Alternate tax 19.93%* 19.0035%*
Dividend Distribution tax 16.609% N.A.
Branch Profit Tax NA NA
*In case net income exceeds 10 million
5 Section 115-O of Indian Income-tax Act, 1961
6 Finance Act 2010
7 Chapter X of Indian Income-tax Act, 1961
8 Section 72 and Section 32 of Indian Income-tax Act, 1961
9 Indian Income-tax Act, 1961 and the Exchange Control /
Regulatory provisions
10Section 6 of Indian Income-tax Act, 1961
11Finance Act 2010
12Comprises of relevant provisions of Finance Act, 1994, The
Customs Act, 1962 and State-specific VAT legislations, as
amended from time to time, the rules and regulations
thereunder
13 14
PSC also lay down the manner of service, in relation to location or
deduction as: exploration of deposits of mineral, oil
There is a special tax regime for non-
or gas
- Allowable expenditure is aggregated till
resident service providers engaged in
the commencement of commercial Site formation and clearance services
the business of providing services or
production (effective from 16 June 2005)
facilities or supplying plant and
machinery on hire in connection with
- Accumulated expenditure allowed in the - Includes drilling, boring and core
prospecting for, or extraction or
year of commencement of commercial extraction services in relation to site
production of, mineral oils.
production or permitted to be amortized formation and clearance, excavation
over a period of 10 years. and earth moving and demolition
Ten percent of the gross receipts
deemed to be business income
Mining services (effective from 1 June
resulting in an effective tax rate of
2007)
4.223 percent of gross revenues (rate
- Introduced to tax 'any service provided
as applicable for financial year 2010-
All unsuccessful exploration costs in other
in relation to mining of minerals, oil &
2011)
contract areas can be set off against
gas
income in the contract area in which
The tax payer has an option to claim
commercial production has commenced. Commercial or industrial construction
lower profits, subject to following
conditions:
- Includes construction of well head and
civil works at site.
- Keep/maintain books/documents
Service tax also leviable on the
- Get accounts tax audited
Hundred percent tax holiday available in
following services:
respect of profits earned from
- Furnish tax audit report
- Dredging services production of mineral oils.
- Compulsory scrutiny assessment.
- Technical testing and analysis Hundred percent tax holiday available in
respect of profits earned from
- Pipeline transportation
production of natural gas from the
- Cleaning (including services for tank,
blocks licensed under NELP VIII and
Subject to certain procedures and
reservoir of commercial or industrial
CBM IV
conditions, Custom Duty exemption is
building and premise).
Tax holiday is available for seven
available for:
consecutive years from the year of
Equipments etc. imported for exclusive
commencement of commercial
use in petroleum operations
production.
Equipment and machinery procured for
Specified goods required in connection
However, companies availing deduction
exploration and production operations
with petroleum operations under
under these provisions would still be
are eligible for deemed export benefits
specific exemption notification
liable to pay MAT on 'book profits'.
which include Excise duty drawback/
Parts and raw materials for manufacture
exemption / advance authorization.
of goods for the purpose of off-shore
petroleum operations undertaken under
specified contracts.
Special deduction is available for
contribution to site restoration fund
Amount of deduction being lower of:
Relevant Service Tax Category
- Sum deposited either in a special
Survey and exploration of mineral, oil &
account or in a "Site Restoration
gas services (effective from 10
Account" or
September 2004)
- Twenty percent of the profits
- Includes geological, geophysical or
calculated in the prescribed manner.
other prospecting, surface and
subsurface surveying or map making
Taxation of service providers
No ring fencing of expenditure
Tax holiday
Custom duty
Excise duty
Deductibility of site restoration fund
Service tax
16
14
17
15
18
18The Finance Act, 1994 and the rules and regulations
thereunder
16Section 44BB of Indian Income-tax Act, 1961
17Custom Act, 1962 and the rules and regulations
thereunder
15 16
REGULATORY AND TAX REGIME FOR UPSTREAM SECTOR
Regulatory and tax regime for
upstream sector
13
India also provides a customized tax Specific allowances [in addition or in lieu
regime for the upstream sector and non- of allowances under normal provisions]
India also provides a customized tax
resident service providers in relation to as specified in the PSC are permitted.
regime for the upstream sector and non-
Exploration and Production operations.
resident service providers in relation to The specific allowances relate to:
Exploration & Production operations. There is a special mechanism for taxation
- Expenditure by way of infructuous or
of income of companies which have
A brief overview of the regulatory and tax abortive exploration
entered into a Production Sharing Contract
regime for upstream sector is outlined
- Expenditure incurred for exploration or
(PSC) with the Government of India for
below:
drilling activities or services or assets
undertaking exploration and production
used for these activities.
activities.
As per these provisions, taxable profits
of a tax payer, who has entered into a
FDI up-to 100 percent permitted under
PSC with the Government for
automatic route (i.e. without approval) in
Hundred percent deduction of participation in the business of
exploration activities of oil and natural
exploration and drilling expenses (both prospecting, exploration or production of
gas fields, infrastructure related to
capital and revenue allowed) and other mineral oil, to be determined in
marketing of petroleum products, actual
expenses (including production accordance with the special provisions
trading and marketing of petroleum
expenditure) allowed under normal contained in the PSC
products, market study and formulation.
provisions of the Income-tax Act
This will however be subject to the The provisions of the domestic tax law
existing sectoral policy are deemed to be modified to that
extent.
A foreign company can setup a project
office or an Indian company for
undertaking upstream operations in
India.
Income tax Special provision
Regulatory
PSC
14Section 80IB(9) of Indian Income-tax Act, 1961
15Section 33ABA of Indian Income-tax Act, 1961
13Comprises of Foreign Direct Investment Guidelines, Section
42 of Indian Income-tax Act, 1961, Article 17 of PSC and
relevant indirect tax provisions
PSC also lay down the manner of service, in relation to location or
deduction as: exploration of deposits of mineral, oil
There is a special tax regime for non-
or gas
- Allowable expenditure is aggregated till
resident service providers engaged in
the commencement of commercial Site formation and clearance services
the business of providing services or
production (effective from 16 June 2005)
facilities or supplying plant and
machinery on hire in connection with
- Accumulated expenditure allowed in the - Includes drilling, boring and core
prospecting for, or extraction or
year of commencement of commercial extraction services in relation to site
production of, mineral oils.
production or permitted to be amortized formation and clearance, excavation
over a period of 10 years. and earth moving and demolition
Ten percent of the gross receipts
deemed to be business income
Mining services (effective from 1 June
resulting in an effective tax rate of
2007)
4.223 percent of gross revenues (rate
- Introduced to tax 'any service provided
as applicable for financial year 2010-
All unsuccessful exploration costs in other
in relation to mining of minerals, oil &
2011)
contract areas can be set off against
gas
income in the contract area in which
The tax payer has an option to claim
commercial production has commenced. Commercial or industrial construction
lower profits, subject to following
conditions:
- Includes construction of well head and
civil works at site.
- Keep/maintain books/documents
Service tax also leviable on the
- Get accounts tax audited
Hundred percent tax holiday available in
following services:
respect of profits earned from
- Furnish tax audit report
- Dredging services production of mineral oils.
- Compulsory scrutiny assessment.
- Technical testing and analysis Hundred percent tax holiday available in
respect of profits earned from
- Pipeline transportation
production of natural gas from the
- Cleaning (including services for tank,
blocks licensed under NELP VIII and
Subject to certain procedures and
reservoir of commercial or industrial
CBM IV
conditions, Custom Duty exemption is
building and premise).
Tax holiday is available for seven
available for:
consecutive years from the year of
Equipments etc. imported for exclusive
commencement of commercial
use in petroleum operations
production.
Equipment and machinery procured for
Specified goods required in connection
However, companies availing deduction
exploration and production operations
with petroleum operations under
under these provisions would still be
are eligible for deemed export benefits
specific exemption notification
liable to pay MAT on 'book profits'.
which include Excise duty drawback/
Parts and raw materials for manufacture
exemption / advance authorization.
of goods for the purpose of off-shore
petroleum operations undertaken under
specified contracts.
Special deduction is available for
contribution to site restoration fund
Amount of deduction being lower of:
Relevant Service Tax Category
- Sum deposited either in a special
Survey and exploration of mineral, oil &
account or in a "Site Restoration
gas services (effective from 10
Account" or
September 2004)
- Twenty percent of the profits
- Includes geological, geophysical or
calculated in the prescribed manner.
other prospecting, surface and
subsurface surveying or map making
Taxation of service providers
No ring fencing of expenditure
Tax holiday
Custom duty
Excise duty
Deductibility of site restoration fund
Service tax
16
14
17
15
18
18The Finance Act, 1994 and the rules and regulations
thereunder
16Section 44BB of Indian Income-tax Act, 1961
17Custom Act, 1962 and the rules and regulations
thereunder
15 16
REGULATORY AND TAX REGIME FOR UPSTREAM SECTOR
Regulatory and tax regime for
upstream sector
13
India also provides a customized tax Specific allowances [in addition or in lieu
regime for the upstream sector and non- of allowances under normal provisions]
India also provides a customized tax
resident service providers in relation to as specified in the PSC are permitted.
regime for the upstream sector and non-
Exploration and Production operations.
resident service providers in relation to The specific allowances relate to:
Exploration & Production operations. There is a special mechanism for taxation
- Expenditure by way of infructuous or
of income of companies which have
A brief overview of the regulatory and tax abortive exploration
entered into a Production Sharing Contract
regime for upstream sector is outlined
- Expenditure incurred for exploration or
(PSC) with the Government of India for
below:
drilling activities or services or assets
undertaking exploration and production
used for these activities.
activities.
As per these provisions, taxable profits
of a tax payer, who has entered into a
FDI up-to 100 percent permitted under
PSC with the Government for
automatic route (i.e. without approval) in
Hundred percent deduction of participation in the business of
exploration activities of oil and natural
exploration and drilling expenses (both prospecting, exploration or production of
gas fields, infrastructure related to
capital and revenue allowed) and other mineral oil, to be determined in
marketing of petroleum products, actual
expenses (including production accordance with the special provisions
trading and marketing of petroleum
expenditure) allowed under normal contained in the PSC
products, market study and formulation.
provisions of the Income-tax Act
This will however be subject to the The provisions of the domestic tax law
existing sectoral policy are deemed to be modified to that
extent.
A foreign company can setup a project
office or an Indian company for
undertaking upstream operations in
India.
Income tax Special provision
Regulatory
PSC
14Section 80IB(9) of Indian Income-tax Act, 1961
15Section 33ABA of Indian Income-tax Act, 1961
13Comprises of Foreign Direct Investment Guidelines, Section
42 of Indian Income-tax Act, 1961, Article 17 of PSC and
relevant indirect tax provisions
Proposed legisation - Direct Tax
Code Bill 2010 Provisions related to Controlled Foreign
Corporations (CFC) have been
Income of non-resident service In an attempt to simplify the direct tax
introduced and it gets attracted when a
providers engaged in the business of provisions, the government proposes to
foreign company is controlled by
providing services or facilities or replace the existing tax regime with the
resident tax payers.
supplying plant and machinery on hire in new Direct Tax Code Bill, 2010 (DTC). The
The DTC provides for General Anti- connection with prospecting for, or DTC is likely to be effective from 1 April
Avoidance Rules (GAAR) provisions extraction or production of, mineral oils 2010 and the key features are as under:
which empower the revenue authorities and mineral oil is classified as Special
Income has been proposed to be
with sweeping powers to declare any Source income
classified into two broad group (i)
arrangement impermissible if entered
14 percent of the gross receipts Income from Ordinary Sources and (ii)
with the objective of obtaining a tax
deemed to be business income Income from Special Sources.
benefit and lacks commercial
resulting in an effective tax rate of 4.2
The tax rate for companies (domestic as substance.
percent of gross revenues (at tax rate of
well as foreign companies ) have been
30 percent)
pegged at 30 percent. In addition,
The tax payer has an option to claim foreign companies are also liable to a 15
lower profits, subject to following percent branch profit tax (BPT) on post
DTC has proposed specific tax regime for
conditions: tax income
the upstream sector (Schedule Eleventh)
- Keep/maintain books/documents MAT applicable to a companies, if tax
and non-resident service providers
payable by the company on its total
(Schedule Fourteenth) in relation to
- Get accounts tax audited
income, as computed under the normal
Exploration & Production operations. Key
- Furnish tax audit report
provisions, is less than 20 percent of its
features of the DTC provisions are as under
book profits. Carry forward and set off
- Compulsory scrutiny assessment.
Income from business of exploration
of MAT is available for 15 subsequent
and production of mineral oil is
years
classified as Special Source income
DDT is levied at the rate of 15 percent
Specific computation mechanism
on the amount of dividend declared,
prescribed in Schedule Eleventh
distributed or paid by an Indian company
Deduction for capital expenditure and
Corporate tax rates at a glance:
revenue expenditure, infructuous and
abortive expenditure allowed
Deduction for deposit made to Site
Restoration Fund
Profit-linked deductions are replaced
with investment based incentives are
introduced
DTC provides for grandfathering of tax
holiday available to oil and gas
undertaking which are eligible for such
benefit under the present tax regime.
Taxation of service providers
Tax regime for upstream sector
Proposed legisation - Goods and
services tax
Although, the precise impact of GST on Oil
The Finance Minister while presenting
and Gas sector needs to be analyzed in
the Union Budget 2010-11 expressed
light of the GST provisions, in due course
the Government's 'earnest endeavour'
of time, the following is the likely impact on
to roll out GST on 1 April 2011, however,
the same, based on the existing
due to lack of consensus between
information in the public domain:
States and Centre, the said deadline
may be extended
Likely increase/ change in tax rates of
goods and services with a proposed
GST would be a destination-based tax
GST rate of 20/16 percent
levied on consumption, applicable on a
comprehensive base of both goods and
Stock transfers are likely to be taxable
services
under GST at par with inter-state
supplies
GST in India is proposed to be a dual
levy (i.e. Centre and State level) and is
Fate of existing Customs/ Excise duty
likely to subsume most, if not all, of the
exemptions for equipment unclear in
current Central and State levies like
light of overall intent of GST
Excise duty, VAT/ CST, Service tax, etc.
Imports to be brought under the GST
Free flow of credits are proposed under
net for the first time
GST regime (i.e., input taxes paid on
Concessional CST rate (2 percent) on
procurement of goods and services can
inter-state purchases likely to be
be set off against output taxes payable
discontinued
on supply/ provision of goods/ services)
The definition of 'India' may be widened
Whether petroleum products would be
under GST regime to cover all the off-
included in GST ambit is still uncertain.
shore supply of goods and services
within the Exclusive Economic Zones.
Key areas of relevance under the
proposed GST regime
Resources
Domestic
Corporation
Foreign
Corporation
Corporate tax rate 30% 30%
Minimum
Alternate tax
20% 20%
Dividend
Distribution tax
15% N.A.
Branch Profits Tax N.A. 15%
17 18
Proposed legisation - Direct Tax
Code Bill 2010 Provisions related to Controlled Foreign
Corporations (CFC) have been
Income of non-resident service In an attempt to simplify the direct tax
introduced and it gets attracted when a
providers engaged in the business of provisions, the government proposes to
foreign company is controlled by
providing services or facilities or replace the existing tax regime with the
resident tax payers.
supplying plant and machinery on hire in new Direct Tax Code Bill, 2010 (DTC). The
The DTC provides for General Anti- connection with prospecting for, or DTC is likely to be effective from 1 April
Avoidance Rules (GAAR) provisions extraction or production of, mineral oils 2010 and the key features are as under:
which empower the revenue authorities and mineral oil is classified as Special
Income has been proposed to be
with sweeping powers to declare any Source income
classified into two broad group (i)
arrangement impermissible if entered
14 percent of the gross receipts Income from Ordinary Sources and (ii)
with the objective of obtaining a tax
deemed to be business income Income from Special Sources.
benefit and lacks commercial
resulting in an effective tax rate of 4.2
The tax rate for companies (domestic as substance.
percent of gross revenues (at tax rate of
well as foreign companies ) have been
30 percent)
pegged at 30 percent. In addition,
The tax payer has an option to claim foreign companies are also liable to a 15
lower profits, subject to following percent branch profit tax (BPT) on post
DTC has proposed specific tax regime for
conditions: tax income
the upstream sector (Schedule Eleventh)
- Keep/maintain books/documents MAT applicable to a companies, if tax
and non-resident service providers
payable by the company on its total
(Schedule Fourteenth) in relation to
- Get accounts tax audited
income, as computed under the normal
Exploration & Production operations. Key
- Furnish tax audit report
provisions, is less than 20 percent of its
features of the DTC provisions are as under
book profits. Carry forward and set off
- Compulsory scrutiny assessment.
Income from business of exploration
of MAT is available for 15 subsequent
and production of mineral oil is
years
classified as Special Source income
DDT is levied at the rate of 15 percent
Specific computation mechanism
on the amount of dividend declared,
prescribed in Schedule Eleventh
distributed or paid by an Indian company
Deduction for capital expenditure and
Corporate tax rates at a glance:
revenue expenditure, infructuous and
abortive expenditure allowed
Deduction for deposit made to Site
Restoration Fund
Profit-linked deductions are replaced
with investment based incentives are
introduced
DTC provides for grandfathering of tax
holiday available to oil and gas
undertaking which are eligible for such
benefit under the present tax regime.
Taxation of service providers
Tax regime for upstream sector
Proposed legisation - Goods and
services tax
Although, the precise impact of GST on Oil
The Finance Minister while presenting
and Gas sector needs to be analyzed in
the Union Budget 2010-11 expressed
light of the GST provisions, in due course
the Government's 'earnest endeavour'
of time, the following is the likely impact on
to roll out GST on 1 April 2011, however,
the same, based on the existing
due to lack of consensus between
information in the public domain:
States and Centre, the said deadline
may be extended
Likely increase/ change in tax rates of
goods and services with a proposed
GST would be a destination-based tax
GST rate of 20/16 percent
levied on consumption, applicable on a
comprehensive base of both goods and
Stock transfers are likely to be taxable
services
under GST at par with inter-state
supplies
GST in India is proposed to be a dual
levy (i.e. Centre and State level) and is
Fate of existing Customs/ Excise duty
likely to subsume most, if not all, of the
exemptions for equipment unclear in
current Central and State levies like
light of overall intent of GST
Excise duty, VAT/ CST, Service tax, etc.
Imports to be brought under the GST
Free flow of credits are proposed under
net for the first time
GST regime (i.e., input taxes paid on
Concessional CST rate (2 percent) on
procurement of goods and services can
inter-state purchases likely to be
be set off against output taxes payable
discontinued
on supply/ provision of goods/ services)
The definition of 'India' may be widened
Whether petroleum products would be
under GST regime to cover all the off-
included in GST ambit is still uncertain.
shore supply of goods and services
within the Exclusive Economic Zones.
Key areas of relevance under the
proposed GST regime
Resources
Domestic
Corporation
Foreign
Corporation
Corporate tax rate 30% 30%
Minimum
Alternate tax
20% 20%
Dividend
Distribution tax
15% N.A.
Branch Profits Tax N.A. 15%
17 18
Appendix I: Map of Existing and Proposed Gas Pipelines
Appendix II: Existing and Proposed LNG Terminals
Ennore (2.5mpta)
Dahej I&II (10mtpa)
Dahej III (2.5mtpa)
Mundra (6mtpa)
Hazira I (2.5mtpa)
Hazira II (2.5mtpa)
Dabhol (5mtpa)
Mangalore (2.5mtpa)
Expected to come up after FY 12
Expected to come up by FY 12
Kochi (2.5mtpa)
Kochi (2.5mtpa)
Existing LNG Terminal
Proposed LNG Terminal
Source: KPMG Analysis
19 20
Source: PNGRB
Appendix I: Map of Existing and Proposed Gas Pipelines
Appendix II: Existing and Proposed LNG Terminals
Ennore (2.5mpta)
Dahej I&II (10mtpa)
Dahej III (2.5mtpa)
Mundra (6mtpa)
Hazira I (2.5mtpa)
Hazira II (2.5mtpa)
Dabhol (5mtpa)
Mangalore (2.5mtpa)
Expected to come up after FY 12
Expected to come up by FY 12
Kochi (2.5mtpa)
Kochi (2.5mtpa)
Existing LNG Terminal
Proposed LNG Terminal
Source: KPMG Analysis
19 20
Source: PNGRB
KPMG is a global network of KPMG in India, the audit, tax and The firms in India have access to more
professional firms providing Audit, Tax advisory firm, is the Indian member than 3000 Indian and expatriate
and Advisory services. We operate in firm of KPMG International professionals, many of whom are
146 countries and have 140,000 Cooperative (KPMG International.) internationally trained. We strive to
people working in member firms was established in September 1993. provide rapid, performance-based,
around the world. The independent As members of a cohesive business industry-focused and technology-
member firms of the KPMG network unit they respond to a client service enabled services, which reflect a
are affiliated with KPMG International environment by leveraging the shared knowledge of global and local
Cooperative (KPMG International), a resources of a global network of firms, industries and our experience of the
Swiss entity. Each KPMG firm is a providing detailed knowledge of local Indian business environment.
legally distinct and separate entity and laws, regulations, markets and
describes itself as such. competition. We provide services to
over 2,000 international and national
clients, in India. KPMG has offices in
India in Mumbai, Delhi, Bangalore,
Chennai, Hyderabad, Kolkata, Pune
and Kochi.
ABOUT KPMG IN INDIA
21
KPMG is a global network of KPMG in India, the audit, tax and The firms in India have access to more
professional firms providing Audit, Tax advisory firm, is the Indian member than 3000 Indian and expatriate
and Advisory services. We operate in firm of KPMG International professionals, many of whom are
146 countries and have 140,000 Cooperative (KPMG International.) internationally trained. We strive to
people working in member firms was established in September 1993. provide rapid, performance-based,
around the world. The independent As members of a cohesive business industry-focused and technology-
member firms of the KPMG network unit they respond to a client service enabled services, which reflect a
are affiliated with KPMG International environment by leveraging the shared knowledge of global and local
Cooperative (KPMG International), a resources of a global network of firms, industries and our experience of the
Swiss entity. Each KPMG firm is a providing detailed knowledge of local Indian business environment.
legally distinct and separate entity and laws, regulations, markets and
describes itself as such. competition. We provide services to
over 2,000 international and national
clients, in India. KPMG has offices in
India in Mumbai, Delhi, Bangalore,
Chennai, Hyderabad, Kolkata, Pune
and Kochi.
ABOUT KPMG IN INDIA
21
Oil and Gas
Overview 2010
ENERGY AND NATURAL RESOURCES
kpmg.com/ in
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