Post Budget Analysis | OIL & GAS

<span style="font-weight: bold;">Proposals</span><br />
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<li>Provision of revenue expenditure/subsidy for sensitive petroleum products of ~Rs 217 billion for FY2019 and 2018v19 (BE), excluding allocation of new LPG connections to poor families.<br />
Impact: Shortfall of Rs 110v120 billion in petroleum subsidy allocation, if crude oil price remains ~$70/bbl or higher.</li>
<li>Allocation of Rs 32 billion for new LPG connections to poor (BPL) families for FY2019.<br />
Impact: Increased LPG penetration to aid in sales volumes and marketing profits of oil marketing companies (OMCs).</li>
<li>Allocation of Rs 16.7 billion as capital expenditure for PhulpurvDhamravHaldia pipeline project of GAIL.<br />
Impact: Increased clarity on disbursement of grant approved for GAIL’s natural gas pipeline.</li>
<li>Allocation of Rs 13 billion for the National Seismic Programme.<br />
Impact: Help companies in the E&amp;P sector with improved data repository.</li>
<li>Allocation of Rs 7.8 billion for strategic oil reserve projects.<br />
Impact: Strategic reserves to provide comfort for oil security of the country in case of emergency.</li>
<li>Introduction of Rs 8/litre Road and Infrastructure Cess on petrol and diesel; abolition of Rs 6/litre Additional Duty of Excise (Road Cess); reduction in basic excise duty on petrol and diesel by Rs 2/litre. <br />
Impact: No impact on prices of auto fuel and sector companies. </li><br />
<span style="font-weight: bold;">Impact: Moderately Negative</span><br />
Petroleum subsidy RE of ~Rs 222 billion (excluding new LPG connections) for FY2018 is lower than the expected burden of Rs 258 billion in the current year, which may not impact the companies considering the over-allocation for FY2017. However, the petroleum subsidy allocation of Rs 217 billion for FY2019 would materially fall short by Rs 110v120 billion.<br />
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As per ICRA estimates, the government of India (GoI) subsidies are projected to be ~Rs 330v340 billion against gross under-recoveries of ~Rs 400 billion (at crude oil price of $70/bbl and Rs/$ mark of 65). However, upstream oil companies may have to bear the balance burden of ~Rs 60 billion as per the extant, under-recovery sharing mechanism. <br />
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The under-allocation for FY2019 may lead to marginally higher debt and interest levels for the OMCs.<br />
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As the GoI revised the target of LPG connections for the poor (BPL) households to eight crore for FY2019 (from five crore for FY2018), allocation for the same has also been increased to Rs 32 billion for FY2019 (up from Rs 22.5 billion for FY2018). The move would lead to an increase in LPG penetration, thereby boosting LPG sales volumes and marketing profits for OMCs. <br />
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However, it may lead to a rise in LPG subsidies at current or higher crude oil prices. For the gas sector, an allocation of Rs 16.7 billion for FY2019 (BE) along with Rs 4 billion for FY2018 (RE) for GAIL’s PhulpurvDhamravHaldia pipeline project provides clarity on disbursement. The pipeline, being laid with a capital grant of ~Rs 51.7 billion out of the total estimated capital outlay of Rs 129.4 billion, is expected to connect the natural gas grid with the eastern part of the country. This could lead to revival of three fertiliser units and CGD networks in many cities.<br />
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The Budget allocates Rs 13 billion for the National Seismic Programme (NSP), which is to be spent on fresh appraisal of all sedimentary basins in India, especially where no or scanty data is available. NSP, which is to be conducted by ONGC and Oil India Ltd (OIL), can help the upcoming bidding rounds for oil and gas areas with better 2D seismic data repository. The allocation of Rs 7.8 billion for FY2019 (against Rs 11.4 billion for FY2018) for payment to Indian Strategic Petroleum Reserves (ISPRL) is aimed at building crude oil reserves, which would provide comfort for oil consumption by the country in case of an emergency. The introduction of Rs 8/litre Road and Infrastructure Cess on petrol and diesel, along with the abolition of Rs 6/litre Additional Duty of Excise (Road Cess), offsets Rs 2/litre fall in basic excise duty on petrol and diesel. Thus, there would be no impact on prices of auto-fuels and oil and gas companies.
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<p> Dr Dharmendra Debendra Pradhan, Union Minister for Petroleum and Natural Gas<br />
This is an aspirational Budget for (New India.÷ This Budget will help stimulate the market. Excise duty on petroleum products has been readjusted, with some portion of it being converted to cess for road development. We have to spend a significant amount of money to expand our road, rail and other infrastructure. I am grateful to the Prime Minister and Finance Minister for reposing their faith in us. They had earlier given my ministry the target of providing five crore LPG connections to the poorest of the poor. After taking into consideration the success of the programme, they have increased the allotment to eight crore within the stipulated period of 2019. We have already given connections to 3.3 crore households.</p>