Will Jaitley fire up the LNG industry?
When Finance Minister Arun Jaitley in one of his earlier Budgets shared the government’s commitment to a gas-based economy, he created a buzz in the otherwise stagnant oil & gas industry. But, as he prepares to present his fourth Budget, the industry is still waiting for the intent to become reality.
Besides, this time around, Jaitley may not enjoy the advantage of soft oil & gas prices, and this may trim the sops.
While it is becoming amply clear that subsidy is not really high on the Finance Minister’s agenda, he might go for measures to promote LNG — right across the value chain: imports, infrastructure, pooling — and LPG for domestic use.
Whether he will pay heed to the industry demand and tinker a bit with the Oil Industry Development Board (OIDB) cess, which is levied on domestic producers, remains a question. But, political pundits caution, given the way oil prices are moving, the best way out for him will be to express the intent and implement it later, if all goes well.
In Budge 2016, Jaitley moved the cess to an ad valorem regime, and made it 20 per cent per barrel. Though the industry was happy about ad valorem, it wanted the rate to be 8 per cent per barrel.
Jaitley has been able to successfully cushion the implications of any fluctuation in crude oil prices till now, as he has based his economic projects taking a benchmark of $60/bbl — this when oil prices were cruising in the $40s.
But, in the last three months alone oil has moved upward by $9/bbl and cruising close to $52-55/bbl. So he will have to take a cushion in the range of $62-$70/bbl. And, when oil is firming up, can natural gas be far behind?
Need for caution
Given the externalities in the oil market and the political implications they have, Jaitley will tread cautiously as he takes the country towards the GST regime. The oil industry, which has been seeking corrections in some of the existing policies, wants him to find the means to continue with the existing exemptions.
They also want petroleum products to be part of GST from day one.
Saying petroleum products should be brought under the GST fold immediately, Rajiv Bahl, Director – Finance, Taxation & Legal, Federation of Indian Petroleum Industry, said the fear is that if it is not done, almost ₹25,000 crore in tax money will be stuck in the hands of the industry .
“The energy industry needs clarity and stability of tax laws for long-term investor confidence,” said Gokul Chaudhri, Partner at BMR & Associates.
“I wish the government would grant a tax holiday to natural gas projects now that the high courts have upheld the claim. Equally, the service tax claims on exploration cash calls and cost recoveries need to be nipped in bud rather than allowing prolonged litigation.”
While the demands are aplenty, Indian refiners do not want to be left out. They have sought tariff protection, so that domestically produced petroleum products do not lose out to cheap imports.