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FIPI Post Budget Analysis 2021

The Union Budget for the Year 2021-22 was announced by the Hon’ble Finance Minister of India Smt. Nirmala Sitharaman on 1 February, 2021. Keeping up with FIPI’s long tradition, FIPI organized its flagship FIPI Post Budget Analysis 2021 session on 2 February with Deloitte India as the knowledge partner. The session witnessed fruitful deliberations on the recently announced budget and its short, medium and long term impacts on the oil and gas sector. The attraction of the FIPI Post Budget Analysis 2021 was the moderated panel discussion on the hits and misses of the budget and the future support required for an accelerated growth of the industry. The session was attended by Mr. Subhash Kumar, Director - Finance, ONGC; Mr. Sandeep Kumar Gupta, Director - Finance, IndianOil; Mr. Anjani Kumar Tiwari, Director – Finance, GAIL (India) Ltd; Mr. Kartikeya Dube, Chief Financial Officer, Reliance BP Mobility Limited;, Director – Finance, Petronet LNG and Mr. P Balasubramanian, Chief Financial Officer, Ratnagiri Refinery and Petrochemicals Ltd among other industry leaders and participants.

Delivering his opening remarks, Dr R K Malhotra, Director General, FIPI welcomes all speakers and participants and highlighted that this budget was long awaited and will go on to be remembered as a historic budget to support the ailing economy after the pandemic. He pointed out that the huge public investment proposed in the budget will provide the much needed fillip to the economy and the rally in the financial markets was only a reflection of the nation’s mood after the budget. He hoped that the increase in economic activity, as result of the budget, will boost energy consumption and that the industry has to stay prepared to fuel this energy requirement. He further underlined that the announcement initiatives in the gas industry such as the creation of independent Transmissions System Operators (TSOs) and expansion of CGD network to 100 more districts will go a long way in realizing the Hon’ble Prime Minister’s vision of a gas based economy. Dr. Malhotra welcomed the Government’s plans to expand the very successful Ujjwala Yojana to reach another 1 crore households and he sounded certain that this will is a farsighted initiative towards social upliftment of the underprivileged and empowerment of women. Speaking on the budgetary announcement of a comprehensive Hydrogen mission, he apprised that the conventional fuel business and our refineries are geared up and equipped to produce store and distribute hydrogen fuel. Dr Malhotra further hoped that the Government soon addresses key industry issues such as reduction/abolishment of OID Cess and inclusion of key petroleum products under GST among others.

The next session was a detailed presentation by Deloitte India on Economic survey and Union Budget 2021. While Mr. Hemal Zobalia, Subject Matter Expert, Infrastructure, Energy & Public Sector presented on direct taxation aspect, Mr. Gulzar Didwania, Partner, Deloitte India briefed the participants on indirect taxation.

The following session at FIPI Post Budget Analysis 2021 was a panel discussion moderated by Ms. Bela Sheth Mao, Partner, Deloitte India. The panel comprised of key financial experts from across the oil and gas value chain. During the deliberations, it was highlighted that the pandemic has a debilitating impact on the oil sector. As result of the COVID-19 inflected lockdowns, crude demand went down by around 29-30 Mbpd. In April, while oil prices stayed negative for a short period, gas prices remained negative for an extended period of 25-30 days in some location. Though the demand has come back now but the pandemic has already taken away the growth for last 7 to 8 years. In geologies like India, the prevailing low oil prices have proved very difficult to cope with for the upstream oil and gas industry. It was underlined that to ease the pressure on the upstream companies and attract additional investment into the sector Government should consider reduction/abolishment of OID cess.

Pipeline capacity utilization is in the range of 50-52 per cent. Some of the pipelines are being utilized at 10-15 per cent as well. The budget proposed for expansion of pipeline network by another 18,000 Kms, taking the total pipeline network to 45000 Kms. Panelists believed that the introduction of Transport System Operator (TSO) is a welcome step and will ensure proper booking by the third party without any discrimination. TSO is going to bring more flexibility in capacity booking, scheduling, monitoring as well as managing the imbalance. TSO will develop its own rules and standards and will take care of the agreements with the customers, charges applicable among other things. With expansion of pipeline capacity, TSO will yield a better way of capacity booking for the third party. TSO is a welcome start but complete liberalization of the gas market should be the goal to bring more investment into the pipeline segment.

Panelists agreed that to make India gas based economy, inclusion of natural gas under GST is imperative. Till such time, the tax rates on natural gas should be moderated since the industry is not being able to pass that on. Government also needs to provide a GST roadmap to bring greater visibility for the investors. For the downstream sector investment in initial infrastructure in retail outlets, CNG stations etc. to enable an early adoption as they contribute to the dual objective of energy access and clean energy. To further encourage EVs and gas mobility, a taxation ecosystem needs to be built to encourage investment in cleaner mobility.

For growth of new refineries and petrochemical complexes in the downstream side of the industry, Government needs to introduce policy support and lower taxation rates. To further reduce the capital costs, the sector will require a substantial reduction in excise duty. Reduction in customs duty will also be required. Lower GST on input services for the sector will also be crucial. Taking account of the Cyclical risk and risks arising due to changing business model, tax holidays and reduced rates that are presently being extended to other industries should also be offered to the new entrants in oil and gas downstream. Government should also look into providing policy support on land prices, stamp duty exemption, ecosystem development, infrastructure development etc. To make the new projects in the sector more viable, policy support will be absolutely necessary from both central and the state Governments.

Delivering the closing remarks at the session, Mr. Rajiv Bahl, Director – Finance Taxation and Legal, FIPI thanked all the speakers and the participants for making the session successful. Noting that there were a few issues arising out of the Budget as emerged during the discussions, he reassured the speakers and the industry members that FIPI will take up the issues brought forward during the session with relevant Government authorities and seek relief. He requested the industry members to forward all such issues so that FIPI can take up the same with Government at the earliest. Bringing the session to an end he thanked the FIPI team and Deloitte India for their efforts to make this session a huge success. Similar to its previous editions, FIPI Post Budget Analysis 2021 witnessed an overwhelming participation of over 250 participant hailing from across the Indian oil and gas industry.

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Dr. R. K. Malhotra, Director General, FIPI delivering the opening remarks.
Mr. Hemal Zobalia, Subject Matter Expert, Infrastructure, Energy & Public Sector shared a detailed presentation on Economic survey and Union Budget 2021
Mr. Gulzar Didwania, Partner, Deloitte India shared a detailed presentation on Economic survey and Union Budget 2021
Panel discussion on ‘ Union Budget 2021’ moderated by Ms. Bela Sheth Mao, Partner, Deloitte India
Mr. Rajiv Bahl, Director(Finance Taxation and Legal), FIPI giving the closing remarks.