ICRA budget comments on Oil & Gas sector

Moreover, gas trading hub should be positive for the upstream oil companies, as it will enable them to achieve higher price levels than the one prevailing currently, which are based on certain formula linked to global prices.

Feb 01, 2020 06:02 IST India Infoline News Service

Budget proposals for Oil & 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 cooking fuels for FY 2020-21 is Rs 38781 Crore, which will leave the downstream oil industry with a backlog of around Rs 11600 Cr by the end of fiscal 2020-21, significantly lower compared to the backlog of Rs 33000 cr 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 SKO allocation. Actual subsidy required for FY 2019-20 and FY 2020-21 is expected to be Rs. 23600 cr and Rs. 27500 Cr respectively.

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

Gas utilities sector will be a significant gainer from the host of measures announced in the Union Budget 2020, such as expansion of the gas transmission pipeline infrastructure from 16000km to 27000km, and setting up of a “Gas Trading Hub”.  These measures should enable the Government achieve its target of 15% of energy consumption mix  from natural gas from 6% currently. These measures should be positive for Gas transmission companies, gas marketers, LNG regassification companies besides City Gas Distribution companies. Moreover, gas trading hub should be positive for the upstream oil companies, as it will enable them to achieve higher price levels than the one prevailing currently, which are based on certain formula linked to global prices.
- K. Ravichandran, Senior Vice President & Group Head, Corporate Ratings, ICRA Ltd.

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