1. Budget 2018: Why oil producers are banking on course correction

Budget 2018: Why oil producers are banking on course correction

Budget 2018: Advent of GST and exclusion of petroleum sector from its purview has meant much higher costs for the domestic oil industry. While the government is making efforts to align states and bring the petroleum sector under GST, it should take measures to clarify that there will be no GST on royalty and cost recovery.

Updated: February 2, 2018 2:46 AM
With rising oil prices and overall decrease in production, the government faces a big fiscal deficit risk. (Reuters) Budget 2018: With rising oil prices and overall decrease in production, the government faces a big fiscal deficit risk. (Reuters)

Budget 2018: It is encouraging to see the Budget acknowledging the need to develop infrastructure, agriculture, finance, health, education and social protection. However, we see little action in addressing the fundamental immediate need of the economy to attain energy security and reduce the burden of crude oil import. Contrary to the burden of import, domestic production will add substantial revenues to the exchequer—and, at the same time, create jobs and help the economy at large. The need of the hour was to lift the domestic oil and gas production to fulfil the Prime Minister’s dream of reducing 10% dependency on imports by 2022. While the Budget was an opportunity for the government to introduce much-needed reforms to encourage existing players as well as attract new foreign investments to effectively tap the country’s energy potential, the finance minister can still take a fresh view of the pressing situation before it’s too late.

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With rising oil prices and overall decrease in production, the government faces a big fiscal deficit risk. The immediate need is to create a level-playing field for domestic crude producers who have to bear 2% CST, while imported crude has no taxes. Further, just like there is no restriction on export of finished petroleum products like petrol and diesel and many refiners export a substantial part of their production, the same freedom should be provided to domestic crude production, in line with free market principles. Advent of GST and exclusion of petroleum sector from its purview has meant much higher costs for the domestic oil industry. While the government is making efforts to align states and bring the petroleum sector under GST, it should take measures to clarify that there will be no GST on royalty and cost recovery.

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Another big concern that remains is the issue of cess. The industry urgently needs the government’s support in regulating the cess regime. The current 20% cess rate is crippling operations of domestic crude producers and there is an urgent need to cut it to 8%.

Sudhir Mathur
CEO, Vedanta Cairn Oil & Gas

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