Duty relief a plus for energy sector, but no big-ticket moves

Lack of sops reflects in performance of oil and gas index, which closed 0.05% up on BSE

The maiden Budget of the National Democratic Alliance (NDA) government was a disappointing one for the oil and gas sector. Although Finance Minister Arun Jaitley said the government would accelerate production and exploitation of coal bed methane (CBM) reserves, and use modern technology to explore and revive old or closed wells to maximise production from such fields, it did not raise the morale of the players in the sector.

“There were no major announcements but we look forward the policy on CBM and natural gas, as has been hinted by the government,” said L K Gupta, managing director and CEO of Essar Oil.

The lack of sops reflected in the performance of the oil and gas index, which was up 0.05 per cent at close on the BSE. The Sensex closed nearly flat, down 0.28 per cent.

The government's plan to bring in public-private partnership (PPP) to complete the gas grid across the country, with an additional 15,000 km, however, was viewed positively. Currently, India has about 15,000 km of gas pipeline system.

“It is proposed to develop these pipelines using appropriate PPP models. This will help increase the usage of gas, domestic as well as imported, which in the long-term will be beneficial in reducing dependence on any one energy sources," said Jaitley.

Nabin Ballodia, partner-tax (oil and gas) at KPMG, said: “The Budget has laid the focus on natural gas and related infrastructure. However, no direction has been provided for indigenous exploration activities. Reduced reliance on imports and vulnerability to external conditions is only possible through domestic exploration. The overall impact is negative on the already-stressed oil and gas sector.”

The petrochemical industry, however, reacted positively to the sops announced for it. Among others, the government has reduced basic customs duty on reformate from 10 per cent to 2.5 per cent and on ethane, propane, ethylene, propylene, butadiene and ortho-xylene from five per cent to 2.5 per cent.

Analysts said a cut in customs duty on ethylene and propylene, however, will have no impact on Reliance Industries (RIL), as external sale of the products are negligible. RIL closed at Rs 998.2, down 0.18 per cent on the BSE. Also, domestic prices will be tweaked to pass on lower customs duty, keeping the overall petchem chain margins intact.