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BUDGETING OF OIL AND GAS SECTOR
Prepared By Name Karishma Dalvi Apeksha Malekar Minal Ghate Arpita Mehta Sahil Shaik Aparajita Sawant Preeti Jain Prathamesh Khandge Rohan Powale Sushma Ghadge Bhagyashree Lanke ROLL NO 12107A0055 12107A0056 12107A0057 12107A0058 12107A0059 12107A0060 12107A0061 12107A0062 12107A0063 12107A0064 12107A0065 .
but also help in managing diesel demand and mitigate the substitution of various products of industrial consumption such as fuel oil and naphtha with diesel. but the quest to reach the top of global league remains a challenge because of rising underrecoveries and lack of policy incentives. .327. the finance minister should consider including in Budget 2013 proposals to lower or exempt the sector from various taxes. it contributed 2. accounting for 20. However.Budget 2013: What the oil and gas sector expects India’s oil and gas sector. The recent announcement of a partial deregulation of diesel prices.6 percent of total indirect taxes. is a welcome move. with market-linked price for bulk users and graded increase in retail prices till price parity. it will not only benefit consumers by offering them a choice. In 2011/12. has grown by leaps and bounds over the past decade. The sector is a key revenue earner for the central and state governments. the need of the hour is complete deregulation of fuel prices and allowing market forces to set the benchmark in tandem with global oil prices. often regarded as the country’s growth engine. Once price parity is reached between retail and market prices. At a time when the government earns a chunk of its revenue from the oil sector.69 billion rupees to central and state governments in taxes.
The private sector operates about 2. Or not charge any tax on services provided to E&P entries OMCs expectations from Budget 2013 Experts feel that oil and gas sector will be given great importance in Budget 2013. but due to lack of a level playing field. flanges and data communication systems used by oil companies for laying gas pipelines and petroleum products. which was imposed on domestic and imported crude oil in the 2003/04 budget. they cannot take CENVAT credit of service tax incurred for exploration and production of crude oil/natural gas. It has put an additional burden on oil refining companies. A level playing field for the private sector would help invigorate the local economy. The levy was to provide support to relief work in areas affected by natural calamities and was supposed to have been removed the following financial year. subjecting the services consumed by E&P entities to service tax.It will also be good for the economy. Speaking on the recent hike in diesel prices by 45 paise per liter. former ONGC chairman R S Sharma said there is a distinct need to align process of diesel with international prices because under recoveries are becoming unmanageable. The government should come up with a scheme for refund of service tax paid by E&P entities on services consumed for exploration as well as production purposes. providing direct employment to between 15. government is way too behind the international price and partial increase will not de-regulate any subsidy. drains a substantial part of the funds committed for exploration. The current policy.000 and 20. something that is not in the interest of a nation which imports nearly 80 percent of its oil requirements. Hence. Citing similar views. Crude oil/natural gas produced by E&P entities is not subject to excise duties. Kirit Parekh said that the hike was too week and that the government needs to act more aggressively in the oil on gas sector as prices need to be successively increased by 40-50 paise per month." said Parekh. Private oil marketing companies have invested substantially in setting up retail outlets. However both the experts agreed that the issue of price hike was highly sensitive but hoped that government will continue to increase the diesel prices amid serious apprehensions from other political parties. which help save energy and prolong the vehicle’s life. "Keeping in mind the recent increase in the prices of world crude oil by one and half rupees.000 outlets mostly in highways and rural India. since a ballooning subsidy bill was threatening to derail overall fiscal discipline. Marketing of premium branded products. has virtually come to a standstill. valves. The industry wants the government to remove the National Calamity Contingent duty (NCCD) on crude oil levied at 50 rupees per metric ton. these assets are underutilised. A reduction in excise duty on branded high speed diesel (HSD) and motor spirit (MS) products has been sought in line with unbranded HSD/MS. reducing funds available for actual exploration activities.000 people. . Oil and Gas expert. experts said that the hike was way too low as partial de-regulisation of the diesel would not solve the problem. The industry has been asking for a waiver on customs duty on import of materials such as pipes.
nationalize the sector. refining and marketing of petroleum products and gas—constitutes over 15% of the country’s GDP. will reduce our losses by Rs 300 crore. The increased production will help reduce the country’s oil imports. Other than this.Moving on further. government needs to encourage investment in the country itself as it would promote employment and support investment and the economy in our own front. it will not impact consumers. it also acted as a critical element in propelling other sectors of the economy. Sharma said. "With PSUs making investment outside the country. large oil discoveries by Reliance in the Krishna-Godavari basin and improved oil recovery projects by oil companies have supported the growth to a larger extent. Commencement of crude oil production by Cairn Energy in Rajasthan. The oil & gas industry has been instrumental in sustaining the growth rate of the Indian economy. Sharma added that setting prices of energy sector on order should be brought on track and said that coal needs to be denationalizes or it will become a huge bottle neck in the economy Limited coal supply creating hurdles for power sector. government needs to urgently de. Financial year 2009-10 has been a landmark one for additional production of oil & gas in India. eliminate the monopoly of Coal India and let the private players come in. the Indian economy largely withstood it. saving foreign exchange and . Since the hike will be marginal. The petroleum & natural gas sector—which includes transportation." Sharma said. Pre-Budget expectations of oil & gas sector Although the last year witnessed the global economic meltdown impacting major economies of the world. which is likely to be announced soon. ALL EXPECTATIONS ON BUSINESS / OIL & GAS RK SINGH Chairman BPCL The hike. experts also said that exploration sector also needs to be given due importance.
India's domestic demand for oil & gas is on the rise. The industry hopes that the application of MAT provisions would be suspended during the tax holiday period. this increases the cost burden. .54 million tonnes of oil equivalent (mmtoe) in 2009-10 to 233. but since there is no output service tax or excise duty liability against which they can claim credit. The industry looks forward to the declared goods status for natural gas. With the Budget around the corner. This can extend to the hitherto untapped areas and also to those areas that have a lower probability of striking oil reserves. It would apply a lower sales tax rate on industrial goods. The development of the oil & gas sector leads to energy security. The service tax is imposed on the input used by E&P companies. Further. except in Rajasthan where 4% tax is levied.leading to higher economic development and an increase in the GDP growth rate. According to the petroleum ministry. More so in light of the Parikh Committee report that has recommended deregulation in the pricing of transport fuel. as against the present prevalent rate that varies from state to state between 12. the tax holiday available for profits from the production of natural gas from Nelp-VIII blocks should be extended to pre-Nelp and CBM blocks. the overall number of blocks brought under exploration has exceeded 200. it would have to be blunted by the right set of monetary policies. the time is ripe for the government to take the right move in the sector.58 mmtoe in 2011-12. demand for oil & gas is likely to increase from 186. a weighted deduction of. enhancing the oil production. Given the impact on inflation deregulation might have.5% and 20%. say. The longstanding demand for the removal of the service tax on the services utilised by E&P companies needs to be addressed. 150% of the actual expenses incurred in respect of exploratory cost should be provided. In addition to the optimisation of tax holiday by providing flexibility to claim it in a block of 10-15 years. Looking at the volatile trend of crude oil prices and under-recoveries made by oil marketing companies (OMCs). With Nelp-VIII. the sector looks forward to fiscal incentives that would boost the sector’s capital outlay. employment and welfare of the community.
many grassroot refineries and projects to be extended expansion projects are undergoing. . GSPL.5% It will make local petchem production and/or Removal or Medium viable by making the spreads more reduction of import duty comparable with the imported polymers of all petchem inputs (current rate 2. PE from 5 to 7. Such Medium till end of 12th five year tax concession extension would support plan (2012-2017) their viability and would benefit HPCL.IIFL Budget Preview 2013-14: Oil & Gas Expectation Probability Implications Reinstate 5% custom The move could be made to increase the duty on crude oil and Low government revenues. positive for Cairn increasing excise duty on and negative for refining companies petro products Clarity on domestic Positive for Gas producers RIL. However as production Rangarajan Committee volumes start increasing transmission recommendations) companies expected to start benefiting Exemption of the 5% import duty on LNG in To increase affordability of LNG and all LNG consumer High thereby beneficial for Petronet LNG. natural gas pricing ONGC and negative for gas consumers (implementation of High like GAIL. IGL. MRPL Increase on import duty on polymers like PVC. BPCL. IGL. OINL. sectors (presently GAIL. IOCL. GUJGAS exemption only in power sector) Clarity on FY13 subsidy Would indicate the sharing pattern for High sharing formula FY14 Extend the tax holiday to natural gas sector It would help improving investment (presently 7-year tax Medium climate in the E&P of domestic gas in holiday given to crude the country oil E&P projects) While the benefit has expired in March Tax holiday on refining end 2012.5%-10%) Current sales tax/VAT is 12.5-20% and Declared goods status for on back of declared goods status the Low LNG and natural gas same rates would be reduced to 5% improving the affordability of LNG.
which include the oil marketing companies . and in particular. There are hardly any power companies in the country which have the facilities to import gas and use it. With a transition to goods and services tax (GST) in the offing. city gas networks or other industries. But this was impractical. 'Declared goods' are those .Oil and Gas Sector Rising crude prices have resulted in mounting under-recoveries for oil marketing companies (OMCs). by categorising gas as 'declared goods' under the central sales tax act. and prices have also fallen from $16-$17 per unit to $9 to $11 for delivery on India's west coast. including the newly commissioned Dabhol terminal with five MTPA capacity. parity in tax rates with crude oil. by more than five times by 2016. India wants to reduce its dependence on oil by shifting further to gas. can be a viable substitute for crude oil and key to accelerating India's growth rate. A concrete subsidy sharing formula would provide visibility over earnings of upstream oil companies and hence.5 metric tonne per annum (MPTA). do not want to lose exclusive taxation rights. The petroleum ministry hopes to increase import capacity. there is a huge amount of gas available for sale in the international markets. The government is likely to re-introduce 5% customs duty on import of crude oil which will be positive for Cairn India. currently at 12. so that the benefit can be passed on to consumers across sectors. whether locally produced or imported. it would be positive for them (ONGC. What the gas industry wants from the budget Players in the natural gas segment would like Finance Minister P. which are expected to be over 166. City gas network also have to pay local taxes. which earn a large chunk of their revenues from taxing oil and gas. Following the shale gas boom in the United States. Chidambaram to realise that gas. Angel expects the budgetary measures to be focused on addressing oil under-recoveries by way of providing clarity on subsidy sharing formula for upstream oil companies.224cr in FY2013. Oil India and GAIL). The last budget provided tax exemption on gas to those power companies which imported it to fuel their own power terminals. They are hoping for tax breaks in the coming budget.want gas to be in the list of products covered by GST. The encouraging news is that Chidambaram too has been trying to convince states to allow oil and gas to be brought under GST. Gas importers want a blanket exemption for all of them. these players . But states. Gas companies want a tax break to be given here as well. be they fertiliser companies.
Other fuels such as crude oil. They are keeping their fingers crossed.of special importance in interstate trade and commerce. hoping the finance minister will listen to them. They point out that telecom equipment has been getting such a concession since 2002. . but differences over taxes has made progress difficult. liquefied petroleum gas (LPG) and coal are already categorised as declared goods. The last budget emphasised developing the national gas grid. Thus pipeline network companies such as GAIL would like tax concession to lay cross-country pipelines.
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