Re-election of NDA will be credit neutral for oil and gas sector: ICRA
The agency said the government’s initiatives should help companies in the sector going forward.
The re-election of National Democratic Alliance (NDA) will be credit neutral for the domestic oil and gas sector, research and retaings agency ICRA said today.
It added that even though the government’s initiatives should help companies in the sector going forward, clarity on pricing freedom on sensitive products and adequate subsidy provision will be critical for the financial profile of the Public Sector Undertakings (PSUs).
“The re-election of NDA will be credit neutral for the domestic oil & gas sector. Even while the credit profiles of the oil & gas companies are getting strained due to debt funded consolidations among the PSUs, large dividend payouts and shares buyback, and intervention in the pricing of auto fuels when crude prices were ruling high,” said K Ravichandran, Senior Vice President at ICRA.
Oil and Natural Gas Corporation (ONGC), India’s largest oil and gas producer, had last fiscal acquired Hindustan Petroleum (HPCL), the government-owned fuel retailer at a cost of Rs 36,915 crore. While, the acquisition helped the government meet its disinvestment target for the fiscal, it impacted the oil explorer’s working capital and cash reserves during the fiscal.
Also, Oil Marketing Companies (OMCs) had to face the ire of the consumers when they had last year initiated a 19-day price freeze on petrol and diesel before the Karnataka elections. Petrol and Diesel prices at retail pumps operated by IOC, HPCL and Bharat Petroleum (BPCL) remained unchanged for 19 straight-days from 24 April, 2018 even as the benchmark international fuel prices had increased on the back of surge in crude oil prices.
“There have been several policy initiatives such as for reinvigorating the exploration & production sector, deeper penetration of natural gas through aggressive roll out of CGD infrastructure in new cities and new LPG connections, which should help the companies in the sector going forward,” Ravichandran said.
The government had during its previous tenure revamped oil and gas bidding framework and the oil and gas exploration policy. The new bidding frame-work allowed companies to carve out their own blocks and allowed all forms of hydrocarbon extraction under a single license. Also, the HELP frame-work replaced the then prevalent fiscal system of production sharing based on Investment Multiple and cost recovery or production linked payment with revenue sharing model.
Petroleum and Natural Gas Regulatory Board (PNGRB) has awarded licenses for setting up city gas distribution networks in 136 geographical areas in the past year which is expected to expand the network of Compressed Natural Gas (CNG) stations in the country to 10,000 from the current 1,500 and piped natural gas (PNG) connections to household kitchens to five crore from around five lakh currently.
PNGRB Chairman D K Sarraf had in March said around Rs 70,000 crore investment was committed in 86 GAs awarded in the 9th city gas bid round in August last year while additional Rs 50,000 crore was committed in the 50 GAs awarded in the 10th round this year. The government has also released 7.19 crore LPG connections under Pradhan Mantri Ujjwala Yojana (PMUY) so far.
Commenting on the results of the just concluded general elections, Pramod Chaudhari, chairman at Praj Industries said. “I expect the new government to take up economic stimulus and growth as a priority agenda. As a result of the prevailing geopolitical situation, there is a sense of skepticism, especially owing to the rise in crude oil prices and flagging trade wars. New Government should de-bottleneck and accelerate the implementation of progressive Bio-fuels policy.”
Chaudhari also said the government should oversee fulfilment of ethanol blending mandate of 10% and eco-system development to set up Compressed Bio Gas (CBG) plants.
In a bid to reduce reliance on conventional fuels, increase farmers’ income and propel the use of bio-fuels in the country, the pil ministry had last year launched a new scheme and annonced the new bio-fuel policy.
The scheme aims at rolling out 5,000 Compressed Bio-Gas plants in a phased manner, with 250 plants by the year 2020, 1,000 plants by 2022 and 5,000 plants by 2025, at an investment of around Rs 1.7 lakh crore.