Oil & Gas industry’s wish list for Union Budget: Review of cess on indigenous production, push for exploration and refining capacity

In the run-up to the Union Budget presentation on February 1, the petroleum industry has sought that the government consider reviewing the oil industry development board (OID) cess alongside providing incentives to enable a further boost to exploration activities, both mature and frontier fields, and a push for upgrading refinery capacity as a catalyst to assist diversification efforts of the country.

Upstream push: review of cess, addressing mature fields and spurring frontier exploration

Speaking to The Hindu on the condition of anonymity, an industry source sought that the OID cess be reviewed. It is levied at 20% on an ad-valorem basis on the production from nomination blocks. “What the industry wants is if the cess could be sought as per a slab-system, on an incremental basis as per the oil prices,” they stated, noting that global oil prices are subject to fluctuations.

From an upstream perspective, analysts and observers also suggested that the industry could also endow acceleration to efforts for improved oil recovery from mature fields as well as provide further incentive to exploration at frontier basins.

Specifically on frontier exploration, Sanjay Sah, Leader Oil, Gas and Chemicals at Deloitte India, and an observer of the hydrocarbon industry, noted that reducing costs for exploration is imperative to mitigate the “high-risk”. “It (the exploration) is very cost-intensive and could be a risky bet considering the outcome in an unexplored place too is uncertain,” he stated.

Further, on the aspect of exploration, the source The Hindu spoke to, noted the government could also consider incentives for the import of equipment. They stated that while there exists a basic customs duty exemption at present, it would be applicable until March 31 this year. “If that can be extended would be of help because people can then plan their expenditure and exploration,” they stated.

Further, they that an additional “tax holiday” for up until seven years could also help address the associated risk with frontier basins.

Downstream push for refineries, help with LPG under-recoveries

With India seeking a diversification of sources for procuring crude oil, analysts and observers believe a push is necessary.

“For capacity upgradation and improve their processing abilities, they would be required to invest money. In that light, a kind of investment allowance, potentially similar to what used to be there until 2017, could be considered for according a push to take up new projects and improving refineries,” the industry executive stated.

Specifically, about the gas industry, Mr. Sah also emphasised that it would look forward to gas being considered as part of the GST regime and the reduction of taxes and duties for CNG vehicles and kits. “You need to incentivise the PNG connections in tier 2 towns and encourage CNG conversions looking at cost built up across the value chain,” he stated.

Separately, Sourav Mitra, Partner for Oil & Gas at Grant Thornton Bharat, also emphasised the need for considering a long-pending demand of the sector to bring natural gas under the GST regime. “A reason why gas is not able to penetrate across multiple industries and sectors is that different states have different VAT mechanisms,” he stated, adding, “If you want to spur natural gas sales, you should bring it under the 5% GST slab.”