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India Oil & Gas
Positive policy steps; implementation will be key
• Targeted subsidies for kerosene: The Finance Minister announced in
his budget speech that the government would move toward targeted cash
subsidies for kerosene, directly transferring cash to families below the
poverty line (BPL). With cooking fuels accounting for ~54% of the total
subsidy of Rs734bn at $86.2/bbl crude, this move could potentially
significantly reduce overall subsidy burden.
• Potential for subsidy bill reduction: Per the Kirit Parikh committee,
~35% of subsidized kerosene is diverted for unauthorized purposes,
including adulteration of diesel. This move could lead to a potential
reduction of the subsidy bill by Rs73.7bn (assuming 35% reduction in
kerosene subsidy at US$86.2/bbl crude)
• LPG cash subsidy to remain: Cash compensation for losses on LPG
will also be introduced, with assistance extended to non-BPL families as
well. Assuming, direct cash compensation would check diversion of LPG
towards commercial use to the extent of 10% - subsidy saving would
amount to Rs18.7bn.
• Implementation is the key: While this move is a positive, gathering
adequate data and putting in place infrastructure for the transfer could be
problematic, and we would wait for more visibility on implementation.
The government has ‘discussed’ targeting of subsidies in the past but this
is the first move towards implementing these proposals. We envisage
difficulties/delays in the implementation; a time-bound effort to
implement this move is a welcome step.
• Subsidy provisions for FY11/12E are positive, but no clarity on
sharing: The Union budget has provided for a further Rs142.8bn for
subsidies in FY11 and provided Rs205.3bn for subsidies in FY12E.
While higher provisions are positive, with crude prices averaging $84 in
FY11TD, this implies government support of 48% of estimated subsidies
– leaving a gap of Rs139bn to be covered by the SOE oil companies
(assuming no further payout). There continues to be no clarity on FY12
subsidy sharing outlook.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
India Oil & Gas
Positive policy steps; implementation will be key
• Targeted subsidies for kerosene: The Finance Minister announced in
his budget speech that the government would move toward targeted cash
subsidies for kerosene, directly transferring cash to families below the
poverty line (BPL). With cooking fuels accounting for ~54% of the total
subsidy of Rs734bn at $86.2/bbl crude, this move could potentially
significantly reduce overall subsidy burden.
• Potential for subsidy bill reduction: Per the Kirit Parikh committee,
~35% of subsidized kerosene is diverted for unauthorized purposes,
including adulteration of diesel. This move could lead to a potential
reduction of the subsidy bill by Rs73.7bn (assuming 35% reduction in
kerosene subsidy at US$86.2/bbl crude)
• LPG cash subsidy to remain: Cash compensation for losses on LPG
will also be introduced, with assistance extended to non-BPL families as
well. Assuming, direct cash compensation would check diversion of LPG
towards commercial use to the extent of 10% - subsidy saving would
amount to Rs18.7bn.
• Implementation is the key: While this move is a positive, gathering
adequate data and putting in place infrastructure for the transfer could be
problematic, and we would wait for more visibility on implementation.
The government has ‘discussed’ targeting of subsidies in the past but this
is the first move towards implementing these proposals. We envisage
difficulties/delays in the implementation; a time-bound effort to
implement this move is a welcome step.
• Subsidy provisions for FY11/12E are positive, but no clarity on
sharing: The Union budget has provided for a further Rs142.8bn for
subsidies in FY11 and provided Rs205.3bn for subsidies in FY12E.
While higher provisions are positive, with crude prices averaging $84 in
FY11TD, this implies government support of 48% of estimated subsidies
– leaving a gap of Rs139bn to be covered by the SOE oil companies
(assuming no further payout). There continues to be no clarity on FY12
subsidy sharing outlook.
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