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Oil & Gas
The budget may offer some relief to oil PSUs as the government may
announce measures to protect the sector from the spiralling crude
price, similar to what it did during the 2008 crude-price spike. We
expect the government to announce reduction of i) customs duty on
crude and oil products and ii) excise duty on petrol/diesel to help in
reducing sector under-recoveries. Further, to boost gas consumption,
government may announce a “declared goods” status for natural gas
apart from reducing customs duty on LNG. The government might
also consider long-pending demands of the sector, which include i)
clarity on a seven-year tax holiday for natural gas, ii) flexibility on a
seven-year tax holiday and iii) providing infrastructure status to the
sector.
Fig 17 – Budget expectations and possible impact on companies
Expected Measures Impact Company
Reduction of customs duty
on crude and oil products
Reduce the under-recovery burden Positive for oil PSUs as subsidy-burden
would decrease
Reduction of excise duties
on petrol/diesel
Reduce under-recoveries on petrol
and diesel, assuming not followed
by price cuts
Positive for oil PSUs as subsidy-burden
would decrease
‘Declared goods’ status for
natural gas
Reduce the gas price due to
lowering of sales tax rate to 4%
against the current rate that varies
from 12.5% to 20% across states
Positive for CGD (IGL, Ggas), power,
fertilizer companies, industrial consumers,
etc.
Removal of 5% customs
duty on LNG
Reduce the LNG price for end user;
make LNG more affordable
Positive for PLNG as demand for LNG
would increase due to improved
affordability of LNG. Positive for CGD (IGL,
Ggas), power, fertilizer companies,
industrial consumers, etc.
Clarity on 7-year tax holiday
for natural gas under Sec 80
IB
Provide incentive to E&P companies
to expedite development of gas
blocks
Positive for RIL, ONGC, Oil India, Cairn
India and other upstream companies which
are producing gas from NELP blocks or will
do so in future.
Flexibility to E&P companies
to claim 7- year tax holiday
in a block of 10-15 years
Will incentivise E&P companies as
the business involves high
investment and risks
Positive for RIL & other upstream
companies
Infrastructure status to the
sector
Provide the incentive to increase
investment
Positive for the entire sector
Source: Anand Rathi Research
Expectations
Fuel reforms: The spiralling price of crude has led to the FY11e
subsidy burden zooming to over `800bn, which might compel the
government to i) cut customs duty on crude and oil products and ii)
reduce excise duty on petrol/diesel, similar to what it did in the 2009
budget.
Gas sector reforms: There is also widespread expectation that the
government might announce a few measures to expedite development
of the domestic gas sector, which includes i) providing of “declared
goods” status to natural gas and ii) removal of 5% customs duty on
LNG.
Other issues: The government might also address long-pending
demands of the sector, which include i) clarity on a seven-year tax
holiday for natural gas, ii) flexibility on a seven-year tax holiday and iii)
providing infrastructure status to the sector.
Impact on the sector
Fuel reforms: Help in reducing the under-recovery burden for the
sector, which has shot up sharply on the sustained rally in the price of
crude. Also the cut in excise duty on petrol and diesel would help
reduce under-recoveries by lowering losses from sale of auto fuels.
Gas sector reforms: Announcement of “declared goods” status for
natural gas would help reduce the end-user price of domestically
produced gas due to lowering of sales tax rate to 4% against the
current rate that varies from 12.5% to 20% across states. Further
reduction of customs duty on LNG would help reduce the price of
imported gas.
Other issues: Allowance of a seven-year tax holiday for natural gas
would provide the incentive to E&P companies to expedite
development of gas blocks. Providing of flexibility to E&P companies
to claim a seven-year tax holiday in a block of 10-15 years would
incentivise E&P companies to increase their investment in exploration
and development. In addition, providing of infrastructure status to the
sector would boost investment due to the tax benefits.
Companies affected
Fuel reforms: Positive for oil PSUs as it would help reduce the sector
under-recoveries.
Gas sector reforms: Positive for PLNG as demand for LNG would
increase due to its improved affordability. Positive for GAIL and
GSPL as improved affordability of gas could mean possibility of more
gas supply, both domestic and imported, boosting their transmission
volumes. Positive for CGD (IGL, Gujarat Gas), power, fertilizer and
industrial consumers.
Other issues: Allowance of a seven-year tax holiday for natural gas is
positive for RIL, ONGC, Oil India, Cairn India and other upstream
companies which produce gas from NELP blocks or would do so in
future. Providing of flexibility to claim a seven-year tax holiday is
positive for RIL and other upstream companies. Providing of
infrastructure status to the sector would benefit the entire sector.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Oil & Gas
The budget may offer some relief to oil PSUs as the government may
announce measures to protect the sector from the spiralling crude
price, similar to what it did during the 2008 crude-price spike. We
expect the government to announce reduction of i) customs duty on
crude and oil products and ii) excise duty on petrol/diesel to help in
reducing sector under-recoveries. Further, to boost gas consumption,
government may announce a “declared goods” status for natural gas
apart from reducing customs duty on LNG. The government might
also consider long-pending demands of the sector, which include i)
clarity on a seven-year tax holiday for natural gas, ii) flexibility on a
seven-year tax holiday and iii) providing infrastructure status to the
sector.
Fig 17 – Budget expectations and possible impact on companies
Expected Measures Impact Company
Reduction of customs duty
on crude and oil products
Reduce the under-recovery burden Positive for oil PSUs as subsidy-burden
would decrease
Reduction of excise duties
on petrol/diesel
Reduce under-recoveries on petrol
and diesel, assuming not followed
by price cuts
Positive for oil PSUs as subsidy-burden
would decrease
‘Declared goods’ status for
natural gas
Reduce the gas price due to
lowering of sales tax rate to 4%
against the current rate that varies
from 12.5% to 20% across states
Positive for CGD (IGL, Ggas), power,
fertilizer companies, industrial consumers,
etc.
Removal of 5% customs
duty on LNG
Reduce the LNG price for end user;
make LNG more affordable
Positive for PLNG as demand for LNG
would increase due to improved
affordability of LNG. Positive for CGD (IGL,
Ggas), power, fertilizer companies,
industrial consumers, etc.
Clarity on 7-year tax holiday
for natural gas under Sec 80
IB
Provide incentive to E&P companies
to expedite development of gas
blocks
Positive for RIL, ONGC, Oil India, Cairn
India and other upstream companies which
are producing gas from NELP blocks or will
do so in future.
Flexibility to E&P companies
to claim 7- year tax holiday
in a block of 10-15 years
Will incentivise E&P companies as
the business involves high
investment and risks
Positive for RIL & other upstream
companies
Infrastructure status to the
sector
Provide the incentive to increase
investment
Positive for the entire sector
Source: Anand Rathi Research
Expectations
Fuel reforms: The spiralling price of crude has led to the FY11e
subsidy burden zooming to over `800bn, which might compel the
government to i) cut customs duty on crude and oil products and ii)
reduce excise duty on petrol/diesel, similar to what it did in the 2009
budget.
Gas sector reforms: There is also widespread expectation that the
government might announce a few measures to expedite development
of the domestic gas sector, which includes i) providing of “declared
goods” status to natural gas and ii) removal of 5% customs duty on
LNG.
Other issues: The government might also address long-pending
demands of the sector, which include i) clarity on a seven-year tax
holiday for natural gas, ii) flexibility on a seven-year tax holiday and iii)
providing infrastructure status to the sector.
Impact on the sector
Fuel reforms: Help in reducing the under-recovery burden for the
sector, which has shot up sharply on the sustained rally in the price of
crude. Also the cut in excise duty on petrol and diesel would help
reduce under-recoveries by lowering losses from sale of auto fuels.
Gas sector reforms: Announcement of “declared goods” status for
natural gas would help reduce the end-user price of domestically
produced gas due to lowering of sales tax rate to 4% against the
current rate that varies from 12.5% to 20% across states. Further
reduction of customs duty on LNG would help reduce the price of
imported gas.
Other issues: Allowance of a seven-year tax holiday for natural gas
would provide the incentive to E&P companies to expedite
development of gas blocks. Providing of flexibility to E&P companies
to claim a seven-year tax holiday in a block of 10-15 years would
incentivise E&P companies to increase their investment in exploration
and development. In addition, providing of infrastructure status to the
sector would boost investment due to the tax benefits.
Companies affected
Fuel reforms: Positive for oil PSUs as it would help reduce the sector
under-recoveries.
Gas sector reforms: Positive for PLNG as demand for LNG would
increase due to its improved affordability. Positive for GAIL and
GSPL as improved affordability of gas could mean possibility of more
gas supply, both domestic and imported, boosting their transmission
volumes. Positive for CGD (IGL, Gujarat Gas), power, fertilizer and
industrial consumers.
Other issues: Allowance of a seven-year tax holiday for natural gas is
positive for RIL, ONGC, Oil India, Cairn India and other upstream
companies which produce gas from NELP blocks or would do so in
future. Providing of flexibility to claim a seven-year tax holiday is
positive for RIL and other upstream companies. Providing of
infrastructure status to the sector would benefit the entire sector.
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