Budget 2020: Gas grid to be expanded to 27,000 km, pricing reforms in offing

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February 1, 2020 9:31 PM

Budget 2020 India: Oil Minister Dharmendra Pradhan said the Budet lays emphasis on creating next generation financial markets, boosting income and investment and several infrastructural reforms for accelerated economic growth.

Budget 2020-21: Connecting gas sources to consumption hubs is a key to achieving this.Budget 2020-21: Connecting gas sources to consumption hubs is a key to achieving this.

Union Budget 2020 India: Finance Minister Nirmala Sitharaman on Saturday laid down plans for expansion of national natural gas pipeline network to 27,000 km from the present 16,200 km and pricing reforms as the government looks at boosting use of environment-friendly fuel.

The government has set a target of raising the share of natural gas in primary energy basket to 15 per cent by 2030 from current 6.2 per cent. Connecting gas sources to consumption hubs is a key to achieving this.

Presently, most of the gas pipelines are concentrated in the western and northern part of the country with a few lines in the east and south.

In her speech while presenting the Budget for 2020-21, Sitharaman said more gas pricing reforms are in the offing.

“To deepen gas markets in India, further reforms will be undertaken to facilitate transparent price discovery and ease of transactions,” she said.

Presently, the price of natural gas produced domestically is fixed by a formula that averages out rates in gas surplus nations such as Russia and the US.

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“Further, it is proposed to expand the national gas grid from the present 16,200 km to 27,000 km,” she said without giving a timeline.

Oil Minister Dharmendra Pradhan said the Budet lays emphasis on creating next generation financial markets, boosting income and investment and several infrastructural reforms for accelerated economic growth.

Commenting on the Budget, Nitin Prasad, Chairman, Shell Companies in India said, “The policy reforms announced in the Union Budget by the Finance Minister sustain the Prime Minister’s vision for India’s journey towards a climate resilient and clean energy society under pinned on electro-mobility, a gas based economy and renewable power delivered through accelerating innovation from start-ups.”

Raju Kumar, Tax Partner, Oil & Gas practice, EY India said the budget announcement of planned increase in natural gas pipeline network and plan to facilitate transparency in price discovery is likely to strengthen the natural gas market in India. “This will also support further expansion of city gas distribution.”

“We are happy that the government has taken a categorical note of the pressing air quality issues in India,” said Suyash Gupta, Director General, Indian Auto LPG Coalition (IAC).

“While the intent is positive and clear, yet it is important to note that the goal can be met only with more and more vehicles adopting to cleaner fuels such as Auto LPG. The absence of any immediate declaration of incentives for state governments who have been working towards the goal or intend to do so in near future can delay the adoption of cleaner fuels as state level governments may just prefer a ‘wait and watch’ approach,” Gupta said.

Pankaj Kalra, CFO & Head-Strategy, Essar Exploration & Production, said expansion of gas grid will definitely be a huge opportunity for players in the unconventional hydrocarbon sectors whose assets are mostly classified as stranded because of lack of evacuation infrastructure.

“As conventional hydrocarbon resources are dwindling and new resource accretions are few and far between, unconventional hydrocarbons, like CBM (as an established source) and Shale Gas (in the long run) will assume greater significance,” he said

“The gas grid expansion, coupled with the liberal policies introduced over the last few years, will revive investor confidence in the upstream sector,” Kalra added.

K. Ravichandran of ICRA said the Budget proposals for oil and gas industry are positive, which include sufficient allocation of subsidy for the downstream sector, policy support for gas economy and abolition of dividend distribution tax.

Subsidy provided for cooking fuels for 2020-21 is Rs 38,781 crore, which will leave the downstream oil industry with a backlog of around Rs 11,600 crore by the end of fiscal 2020-21, significantly lower compared to the backlog of Rs 33,000 crore at the beginning of fiscal 2019-20.

This is on account of lower subsidy required due to fall in oil prices and substantial reduction in kerosene allocation. Actual subsidy required for FY 2019-20 and FY 2020-21 is expected to be Rs 23,600 crore and Rs 27,500 crore, respectively.

“Abolition of dividend distribution tax (DDT) is a positive as the PSU oil and gas companies pay large dividend and any savings in this regard will be beneficial for them, unless they hike the dividend rate further,” he said.

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