Budget cheers petrochem sector

Updated: Mar 1 2006, 05:30am hrs
The Union Budget for 2006-07, presented by finance minister P Chidambram, failed to enthuse the petrochemical sector as a whole. While the plastics and chemicals industry welcomed the Budget for the announcement of reduction in duty in various products, it was a major disappointment for the oil and gas sector, which was expecting major announcements on the pricing of petroleum products.

The plastics industry welcomed the decision to reduce the duty on major bulk plastics like PVC PDPE and PP from 10% to 5%; and on naphtha for plastics to nil; on styrene, EDC and VCM, which are raw materials for plastics, to 2%. Similarly, the chemicals industry hailed the Budget for duty reduction on basic inorganic chemicals from 15 % to 10%, on basic cycle and acyclic hydrocarbons and their derivatives to 5%, and on catalysts from 10 % to 7.5%.

But the FM had nothing to offer to the oil and gas sector, where the state-owned oil companies are bleeding on account of sharing the subsidy burden. Mr Chidambram failed to announce anything for the hike in the retail petroleum products, which was awaited by the petroleum companies on the recommendations of the Rangarajan Committee.

Subir Raha, chairman and managing director, Oil and Natural gas Corporation (ONGC), told FE, "The Budget has nothing to offer, specifically to the oil and gas sector. We were expecting something on the pricing of the retail petroleum products and a new subsidy sharing formula based on the recommendations of the Rangarajan Committee. But nothing has been announced. May be the government will announce something post-Budget."

Says S V Narasimhan, director finance, Indian Oil Corporation (IOC), "We will have to wait for something after the Budget on the recommendations of the Rangarajan Committee. One good announcement by the FM was including LPG in the list of 'declared goods' under the CST Act. Our under recoveries on the sale of LPG will be reduced by Rs 650 crore per annum.

However, FM announced setting up a task force to facilitate development of large PC&P investment regions and three such t regions are expected to be developed in 2006-07. The FM also announced that under NELP VI., 55 blocks and an area of 355,000 square kilometres are offered and investment of Rs 22,000 crore expected in the refinery sector, in the next few years.

Mr Chidambram' s proposal that the concessional projects rate of 10%, to be extended to pipeline projects for transportation of natural gas, crude petroleum and petroleum products, will be of great help to the companies like Reliance Industries Limited (RIL), GAIL India Ltd and Gujarat State Petronet Ltd (GSPL).

GSPL managing director, D J Pandian said, "We will benefit as the concessional projects are of 10% will be extended for the transportation of natural gas and we are in process of more than doubling our pipeline network in Gujarat."

The FM also announced that cess under the Oil Industries Development Act (OIDB) is proposed to be increased from Rs 1800 per metric tonne to Rs 2500 per metric tonne. Says Manish Mahnot, head, infrastructure and government practice, KPMG, "The cess imposed under OIDB will have a negative impact upon the upstream oil companies, and will enhance their underrecoveries, especially when the budget failed to address the issue of subsidy burden and pricing of retail petroleum products."