Jefferies sees BJP's Narendra Modi-led NDA govt speeding up decisions in oil sector

Written by Press Trust of India | Mumbai | Updated: May 20 2014, 04:03am hrs
OilThe note said it expects fuel subsidy reforms to continue by eliminating the diesel subsidies by FY16.
International brokerage Jefferies today expressed hope that incoming government, led by Narendra Modi's BJP, will speed up decision-making in oil sector, especially on the production and exploration front.

"We expect election impact to be positive for the oil & gas sector as reforms that are underway, such as diesel subsidy elimination and gas price hike, are likely to continue and decision-making, particularly in E&P, is likely to be expedited," Jefferies said in a note today.

Key decisions pending in the E&P sector include a policy on product sharing contract (PSC) extension, resolution of the DST issues, approvals for budgets and investment proposals, new PSC model for future Nelp rounds.

These decisions will have the maximum impact on Cairn India and Reliance, said the report, adding the real boost would come if the new government takes up more bold steps such as full elimination of fuel subsidy and privatisation of some of the state-run oil marketing companies.

The note said it expects fuel subsidy reforms to continue by eliminating the diesel subsidies by FY16.

"We expect fuel subsidy reforms which have been going on over the past 18 months to continue under the new government.

"The policy of small diesel price hikes of Rs 0.5 per litre is likely to be continued given its acceptability and success so far. This should lead to elimination of diesel subsidy by FY16, reducing the overall fuel subsidy burden to Rs 75,000-80,000 crore, from Rs 1,61,000 crore in FY13," Jefferies said.

On the contentious gas price hike, the report said: "We expect the gas price hike to go through under the new government.

"Although some members of the BJP have indicated the possibility of a review in the Rangarajan formula, we believe there is little downside risk to our base case assumption of USD 5.7 per mmbtu to ONGC and Oil India and USD 8 to Reliance Industries against USD 4.2 currently".

It also said the new government could also deregulate LPG and kerosene over time to fully eliminate fuel subsidies, privatise oil PSUs, particularly some of OMCs, roll out of city gas distribution across more cities, improve gas availability and infrastructure and improve production efficiency of PSU upstream companies.