BackBudget 2014: Energy security far away
A number of measures with positive intent, but a lack of clarity on implementationnotably with subsidy reduction
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Expectations: HIGH
Delivery: DISAPPOINTING
Measures:
l Additional 15,000km gas pipelines to complete the gas grid via the PPP (public-private partnership) model.
l Expediting production and exploitation of coal bed methane (CBM) reserves.
l Reviewing petroleum subsidies.
l Increasing usage of piped natural gas.
l Measures planned to enhance coal production.
l Tax holiday under section 80-IA for power companies extended.
l Adequate coal for power plants already commissioned or to be commissioned by March 2015.
Impact:
l Gas grid will help increase gas usage and reduce dependence on a single source of energy, but utilization will depend on gas supplies, which are currently inadequate.
l The intention to reduce subsidies is positive, but there is no clarity on timelines or how it will be achieved. No clarity on subsidy sharing either.
l Higher CBM, coal production good, but await the road map on this.
l Tax holiday to reduce tax burden of generation companies.
Stocks in focus:
l Petronet LNG Ltd shares rose by about 3% on expectations that demand for LNG (liquefied natural gas) may increase due to the overall focus on gas sector.
l Stocks of state-run oil companies were more or less flat. The lack of clarity on subsidy sharing mechanism is a dampener.
Pre-budget issues:
l High energy subsidies hurt finances of the government and its companies. Subsidy sharing mechanism is ad hoc, making it difficult to predict earnings of these companies.
l Regulatory hurdles, delayed approvals for increasing production create an unfriendly investment climate.
l State electricity boards, with heavy accumulated losses, are unable to procure enough power. Coal supply problems have led to lower capacity utilization.
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