Incentives for domestic production will boost oil and gas sector: Mahurkar

Ahead of the Union Budget, the oil and gas sector which is largely dependent on imports, expects the government to introduce incentives to attract investments for domestic production, Deepak Mahurkar, partner & leader (oil & gas), PwC said.

Mahurkar also highlighted that innovative schemes should be introduced for hilly areas, remote places and small consumers.

He was responding to questions on a Business Standard live chat on what is required from Budget 2017 to ensure growth in India’s oil and gas sector. Excerpts:

What should the government do to reduce India’s import dependence?

While demand side management and alternative renewable fuels are the way, the gap being so high, India will also need to produce much more domestically. Introducing guidelines to deal with ambiguities in contracts, ease of doing business, contract enforcement, generating more exploration data, freedom to bring in investors, easing exits, and finally incentivising production will attract investments needed for domestic production boost.

Do you think mandatory schemes like Pahal for gas subsidy will be introduced in Budget 2017?

We expect the government to make citizens climb the energy ladder and make better fuels available. The distribution and logistics around that still remains a challenge. However, the government is also keen to assess what is coming in the way of reaching the fuels home. Hence, we expect innovative schemes to be introduced for hilly areas, remote places and small consumers.

Is applicability of the Goods and Services Tax (GST) on key petroleum products a good sign?

GST wouldn’t apply to transport and subsidised fuels and gas. Other refinery fuels will be in the ambit. The imperfect GST will be a burden – from both – the administrative and cost to consumers perspective.

Should cess on crude oil be reduced from the current 20%? Do you think the finance minister will announce something like that in Budget 2017?

The Oil Industry Development Board (OIDB) cess , Budget 2017-18 proved to be an unbearable cost during low crude oil price regime. Also, the feedback is that the cess is not utilised for Oil industry development for which it was created. It will be good if the fiscal balance is maintained for both the investor and the government.

Organisation of the Petroleum Exporting Countries (OPEC) said that it is nearing its target cut of 1.8 million barrels of crude oil per day which is resulting in oil price rise in Asia. Can we expect some measures to check the rising prices or will there be a cut in subsidies in the Budget?

While difficult to expect the budget to deal with such dynamic matters, we expect the exchequer to reduce tax rates with any crude prices going up over the year. The taxes were hiked when oil prices went down. Also, a free market pricing and strong competition in retail will further better ability of consumers to bear with crude prices increase.

Do you think the Pradhan Mantri Ujjwal Yojana was successful? If yes, what more can we expect in this regard from Budget 2017-18?

PMUY was a good way to approach the problem. The penetration was to be targeted. Many consumers had not expected to use LPG in their lifetime for perceived affordability reasons, but they got to!

Will Jaitley remove import duty on LNG and excise duty on CNG?

Removal of these duties is not in line with the long-term tax structure in India. If India eventually plans to have petroleum products and gas in classical GST structure, they would not be considered for review.

Incentives for domestic production will boost oil and gas sector: Mahurkar

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