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OIL & GAS
BUDGET HIGHLIGHTS & IMPACT
n MAT applicable to SEZ - section 115 JB (6)
Impact: Under the existing provisions of section 115 JB (6) of income tax act,
exemption was allowed from payment of MAT on book profits in respect of
income earned from special economic zone (SEZ). The government has removed
this exemption w.e.f 01St April 2011. Hence, erstwhile RPL (now merged with
RIL) refinery which is operating under a SEZ, will now be liable to pay MAT
at the rate of 20% (basic tax rate 18.5% (increased from 18%), surcharge
5% (reduced from 7.5%), education cess 3%). We believe this will be a negative
for RIL as its average tax rate will increase in FY12 leading to higher cash
outflows.
n Direct cash subsidy on kerosene - BPL
Impact: The government provides subsidies on fuel such as Kerosene and LPG.
However, a significant proportion of the subsidized fuel does not reach the
targeted beneficiaries and hence there is a large scale diversion of subsidized
kerosene oil. In order to arrest this misuse, the government is now planning
towards direct transfer of cash subsidy to people living below poverty line in
a phased manner.
A task force headed by Shri Nandan Nilekani has been set-up to work out the
modalities for the proposed system of direct transfer of subsidy for kerosene
and LPG. The interim report of the task force is expected by June 2011. The
government expects the system will be in place by March 2012. We believe
this is a major positive for the all OMCs in the long run, if implemented as
budgeted.
n Disinvestment in PSUs
Impact: In FY11, government will raise ~Rs.221.4 bn as against a target of
Rs. 400 Bn from disinvestment, as the government has postponed the FPO
of ONGC and IOC to FY12. We believe this will be stock Neutral.
n Govt. has reduced the subsidy allocation for petroleum sector
Impact: Union Budget 2011 has pegged the petroleum subsidy provision at
Rs 236 Bn for FY12 as against Rs.383.9 bn in FY11. We believe the allocation
made for FY 12 is very low considering the current crude oil price levels. We
believe this is not positive for OMCs unless crude price corrects substantially
or diesel price is de-regulated.
For FY11, till now the government has given a subsidy of Rs. 210 Bn to the
OMCs for the losses incurred on retail fuel sale and made a further provision
of ~Rs.173.86 Bn for FY11.
n MAT increased to 18.5% from 18%
Impact: The government at one hand has increased the MAT rate from 18%
to 18.5% but on the other hand has reduced the surcharge from 7.5% to
5.0%. So, we believe this is neutral for Cairn and RIL who are currently liable
to MAT.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
OIL & GAS
BUDGET HIGHLIGHTS & IMPACT
n MAT applicable to SEZ - section 115 JB (6)
Impact: Under the existing provisions of section 115 JB (6) of income tax act,
exemption was allowed from payment of MAT on book profits in respect of
income earned from special economic zone (SEZ). The government has removed
this exemption w.e.f 01St April 2011. Hence, erstwhile RPL (now merged with
RIL) refinery which is operating under a SEZ, will now be liable to pay MAT
at the rate of 20% (basic tax rate 18.5% (increased from 18%), surcharge
5% (reduced from 7.5%), education cess 3%). We believe this will be a negative
for RIL as its average tax rate will increase in FY12 leading to higher cash
outflows.
n Direct cash subsidy on kerosene - BPL
Impact: The government provides subsidies on fuel such as Kerosene and LPG.
However, a significant proportion of the subsidized fuel does not reach the
targeted beneficiaries and hence there is a large scale diversion of subsidized
kerosene oil. In order to arrest this misuse, the government is now planning
towards direct transfer of cash subsidy to people living below poverty line in
a phased manner.
A task force headed by Shri Nandan Nilekani has been set-up to work out the
modalities for the proposed system of direct transfer of subsidy for kerosene
and LPG. The interim report of the task force is expected by June 2011. The
government expects the system will be in place by March 2012. We believe
this is a major positive for the all OMCs in the long run, if implemented as
budgeted.
n Disinvestment in PSUs
Impact: In FY11, government will raise ~Rs.221.4 bn as against a target of
Rs. 400 Bn from disinvestment, as the government has postponed the FPO
of ONGC and IOC to FY12. We believe this will be stock Neutral.
n Govt. has reduced the subsidy allocation for petroleum sector
Impact: Union Budget 2011 has pegged the petroleum subsidy provision at
Rs 236 Bn for FY12 as against Rs.383.9 bn in FY11. We believe the allocation
made for FY 12 is very low considering the current crude oil price levels. We
believe this is not positive for OMCs unless crude price corrects substantially
or diesel price is de-regulated.
For FY11, till now the government has given a subsidy of Rs. 210 Bn to the
OMCs for the losses incurred on retail fuel sale and made a further provision
of ~Rs.173.86 Bn for FY11.
n MAT increased to 18.5% from 18%
Impact: The government at one hand has increased the MAT rate from 18%
to 18.5% but on the other hand has reduced the surcharge from 7.5% to
5.0%. So, we believe this is neutral for Cairn and RIL who are currently liable
to MAT.
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