With the National Democratic Alliance (NDA) retaining power with a massive mandate in the national elections, India’s oil and gas industryis hoping to be brought under goods and services tax (GST), besides a push for city gas distribution (CGD) and bio-fuels.
Several analysts said NDA’s re-election will be credit neutral for the domestic oil and gas sector, but company officials are hoping for further reforms.
“Work that was moving slowly due to the election mode, we are hoping is expedited now. We want the government to bring natural gas under the ambit of GST and expect that the work on the city gas distribution segment picks up," an executive from a CGD company said on condition of anonymity.
The industry believes that bringing natural gas under GST would make transport of natural gas across the country more efficient. India is expected to double its LNG (liquefied natural gas) import infrastructure in five years, and along with China, is expected to be a prominent driver of natural gas demand. India is also using LNG to meet its increasing needs to secure energy supply. LNG’s share of India’s total gas supply mix exceeded 50% for the first time in 2018, according to the Shell LNG Outlook 2019.
“GST will be the number one priority for the government. However, the rates need to be decided judiciously as it is challenging to implement the same for auto fuels. Bringing natural gas in the GST ambit should not be a challenge, however," said K. Ravichandran, senior vice-president at rating agency Icra Ltd.
The exploration and production sector that witnessed some reforms in the government’s last term is hoping these could be taken to conclusion, so that work can start off in earnest.
“Our import dependence is going up year after year and we need to look into ways of increasing self-sufficiency and reducing imports. In this regard, facilitating faster regulatory clearances will speed up exploration," added Ravichandran.
The NDA government’s last term saw debt-funded consolidation squeezing financials of state-owned oil companies, large dividend payouts, share buybacks, and intervention in fuel pricing when crude prices rose.
On the CGD front, where investments of as much as ₹1.1 trillion is expected over the next decade, companies expect work will be expedited.
At present, 31 companies are developing CGD networks across 81 geographical locations in 21 states and Union territories, supplying clean cooking fuel in the form of piped natural gas (PNG) to about 4 million households.
The government, which plans to provide 10 million PNG connections, has introduced stringent emission levels for vehicles and plans to develop green corridors to reduce India’s carbon footprint.
There are about 60,000 fuel retail stations and around 1,500 CNG stations across India, but it is the sheer reach and loyalty of customers that the CGD companies are banking on.
Also, CGD has been accorded the highest priority in gas allocation.
Biofuel is another segment waiting for change. “We expect the new government to accelerate the implementation of the bio-fuels policy. It has a lot of promise," said the head of an alternative energy firm.
The oil ministry last year unveiled a new bio-fuel policy to reduce dependence on conventional fuels, increase farmers’ income and increase the use of biofuels.
Its aim is to roll out 5,000 compressed bio-gas plants in a phased manner, with 250 plants by 2020, 1,000 plants by 2022 and 5,000 plants by 2025, at an investment of around ₹1.7 trillion.