Budget expectations: Oil and Gas

21 Jan 2022 , 04:43 PM

“Domestic gas prices, as governed by the modified Rangarajan formula, have remained below the cost of production for many years and stood at $2.90/mmbtu in H2 FY2022. At such low prices, gas production remains a loss-making proposition from even favourable geologies. Accordingly, the upstream industry has been demanding a provision of a floor for gas prices. Additionally, crude oil prices have increased to the levels of ~$79/bbl in early-January 2021, from $14-15/bbl in April 2020. At higher crude oil prices, the ad-valorem cess of 20% limits the realisations and cash accruals of upstream companies compared to the earlier fixed cess per MT. As a result, the upstream industry has been demanding a reduction in cess on crude oil production to improve earnings in a high crude oil price regime.

Further, the levy of National Calamity and Contingent Duty (NCCD) of Rs. 50/MT on import of crude oil, introduced in 2003 for one year, has remained in force since then. Additionally, the upstream industry has been demanding exemption of exploration and development activities from the levy of GST. Also, the industry wants removal of GST from cost petroleum, profit petroleum and royalty. The industry has also been demanding that the GoI should clarify the eligibility to avail a tax holiday under Section 80-IB of the Act and enumerate the definition of ‘mineral oil’ to include natural gas retrospectively.        

Further, the industry has been demanding that crude oil, natural gas and petroleum products be brought under the GST to enable free flow of credit and avoid stranded taxes. To promote the use of natural gas as fuel, Liquified Natural Gas (LNG) imports should be exempt from customs duty as crude attracts nil duty while LNG attracts 2.5% duty.”

Source: ICRA

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