Petroleum minister Murli Deora has said the government is working towards giving tax incentives to companies on production of natural gas from blocks awarded to them. He has said that it’s very important that firms get such incentives.
There is little reason to grant oil and natural gas companies, especially in the private sector, any tax breaks.
Hydrocarbon exploration is a high-risk business that has potentially high rewards as well. Companies factor in these risks when they bid for such contracts.
The production sharing contracts for output from such discoveries accurately reflect this reward-risk equation. As a result, there is no economic case for further tax concessions.
At the same time, the minister’s statement, when the government’s tenure is coming to an end, raises more questions than it answers: What is the necessity to pursue the matter now? Why can’t a decision be left for the new government?
In view of the implications of such a decision, it’s best not to take it in a hurry.