Negative impact for energy sector

Excise duty exemption on natural gas is likely to benefit the industry as more power plants and fertilizer capacities are expected switch to natural gas as the source of feedstock. Further, the CVD exemption shall help companies' price imported liquefied natural gas competitively.

All in all, the budget announcements seem a negative for the energy sector, which had anticipated a cut in custom duty and a price band to provide more autonomy to the oil marketing companies. However, the exemption of excise duties on LNG has been a positive for the companies, which are now venturing into the business. Although a setback in the short-term, long-term prospects for the industry are encouraging.

Currently, the additional depreciation of 15% on plant and machinery is available for additional capacity of 25% or more. However, CII expects this provision to be provided at an additional capacity of 15% in any given year.

CII wants aviation turbine fuel (ATF) to be categorized under the declared goods since high levies make the domestic air services uncompetitive.

Gas prices should be rationalized and should also be categorized under the declared goods. Currently gas prices are capped at Rs 2,850 per TSCM (thousand standard cubic meters), which is one third of the prices of fuel oil against which it was to be linked.

A price band for the oil marketing companies so as to increase prices within the range without seeking prior approval of the government.

Custom

50% cess on petrol and diesel will be utilized for funding road projects including the NHDP

CNG to be charged 8% excise duty in line with duty on LPG and kerosene. Excise duty on petrol, which was not levied earlier, to be at 16%.

Service tax on vehicle service stations.

LNG exempt from CVD.

Subsidy on essential commodities notably LPG and kerosene to continue, albeit at a lower rate. This included the freight subsidy to far-flung places. As a result prices of LPG cylinder increased by Rs 40 per cylinder and kerosene by Rs 1.5/litre. Such subsidies to be reduced over a 3-5 year time frame.

Cess on crude increased from Rs 900/tonne to Rs 1800/ tonne.

50p cess on diesel to be levied to fund additional outlays on infrastructure projects.

Capital goods imports for LNG (liquefied natural gas) degasification plants customs duty reduced from 25% to 5%.

Higher thrust on concrete roads in road projects and lower excise duty on cars and CV's

Introduction of a price band will result in limited autonomy to oil companies in pricing of products without prior government approval.

Rationalization of tariffs on key petroleum products such as MS (petrol) and gradual phasing out of subsidies is expected to provide a big boost for players in the sector, as it will positively affect marketing margins in the medium term.

Approval to acquire oil fields abroad shall help reduce import dependence and at the same time better technology as Indian majors compete in the global arena.

Entry of private players in the marketing segment likely to result in high competition and better quality products resulting in benefits to the consumers.

Demand for petroleum products continues to be low while refining capacities are being hiked resulting in surplus products. Only certain products such as aviation turbine fuel (ATF) and LPG have registered better growth

Delay in the appointment of the independent petroleum regulator may hamper operational freedom and players will continue to dependent on the government for policy related issues.

Sharp spurt in crude prices will have a negative impact on the players' margins in the short term, as product prices have a tendency to increase gradually.

Subsidies on LPG and kerosene are likely to play a havoc on oil marketing companies as government extends the phasing out of the subsidies by one more year.