Fuelling the oil & gas sector

Jul 09 2014, 01:47 IST
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SummaryIt is in the best interest of India’s energy security to adopt policies that deregulate prices while making domestic exploration & production competitive

The oil & gas sector is the bedrock of India’s economy. By 2015, the industry is expected to be worth $200 billion, cementing its position as amongst the largest contributors to the GDP. With the new government seeming intent on reforms, here is a wish-list for the sector.

Price deregulation

A full deregulation of diesel prices, apart from reducing the government’s subsidy burden, will create a level-playing field for the private and public OMCs. The savings accruing to the government because of deregulation can be used for welfare schemes and by E&P companies for exploration, which will improve India’s energy security. Diesel price hikes stoking inflation is an unfounded notion. Prices of, say, onion and potato won’t increase by more than 10 paise per kg even if diesel price is hiked by R5/litre at one go (assuming a 500-km farm-to-plate journey on a 10,000-kg capacity truck, the incremental cost per kg is actually only a few paise).

Infra-sharing

A policy framework to allow infrastructure-sharing amongst refinery companies should be drawn. Players should be allowed to draw products from each other’s location at transfer price, which will eliminate duplication in logistics and trim avoidable costs. Reduction/savings in the spend on logistics will be passed on to the consumers. As for product-exchange between oil companies, taxation laws should be modified to optimise the supply-chain cost across the country. The entire pipeline network should be declared a national asset and brought under one management while being available to all OMCs at a reasonable cost on open-access basis.

E&P

Only specified goods imported for E&P operations are exempt from customs duties. To encourage E&P activity, the existing list of exemptions should be amended to include all goods required. With effect from April 1, 2009, a seven-year tax holiday is available only to blocks assigned in NELP-VIII and CBM-IV. Earlier, this benefit was available to all the blocks. Many companies had claimed this benefit before April 2009 on the blocks other than those allocated under NELP-VIII and CBM-IV. This should be extended to all mineral oil and natural gas blocks to avoid distortion in the costs of production. As CBM has low production volumes, a sliding scale production based royalty, i.e. royalty rate increasing/decreasing with increase/decrease in production volumes, may be adopted.

Excise on branded fuel

There is a huge difference between the excise duty rates imposed on branded and unbranded fuels. While branded petrol is levied a basic excise duty of R7.5/litre,

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