The increase or decrease in global oil prices by each dollar will influence the financial juggling of Finance Minister Arun Jaitley’s Budget. But what remains to be seen is how far Jaitley will go. Will he impose import duty on crude oil purchases, incentivise deepwater exploration, clarify fuel subsidy calculations, put to rest all uncertainty on gas price, and make petroleum retail attractive for private and foreign players, besides addressing other demands of the sector?

There is a strong buzz that Jaitley may impose import duty on crude oil and make some announcements for deepwater exploration.

“The Centre is well aware that oil price fundamentals are tricky. It is a challenge,” an official in the know of the development said. The Centre is assessing what it will take as the average crude oil price for 2015-16. Indications are that it may work its fuel subsidy calculations and other incentives for the sector based on average crude price of $60-70 a barrel.

For 2014-15 the Centre had taken average crude price at $110 a barrel.

Clarity on subsidy sharing is required for better performance of domestic explorers such as ONGC. Insiders say that the Centre may tell ONGC that if crude falls below $50 a barrel then it will be exempted from subsidy burden. Though the Centre has deregulated petrol and diesel pricing at the retail end, methods are being worked out to see how private and foreign investors can be attracted to the segment. India’s petroleum retail business is mainly dominated by State-owned entities that are given subsidy by the Centre for selling oil products at controlled price, while the same is not available for private retailers. This has kept private and foreign players away from making commitments.

Rising concerns from environment lobbies may push the Centre into considering artificial control of diesel prices. Indications are that the State-owned companies have been asked to see whether the economics of selling next generation diesel works out.

Gas price is another contentious issue, where, insiders say, Jaitley may be compelled to give more clarity. Despite the Centre’s recent price policy for domestically produced gas, the formula used has become an issue.

Also, there were concerns on the existing production sharing contract, which needs to be clarified before the next round of oil and gas blocks auctions. The industry is yet again, expecting Jaitley to clarify on the definition of mineral oil. The term ‘mineral oil’ should include natural gas for the purpose of admissibility of tax holiday for production of natural gas from all blocks (including CBM).

While many decisions to incentivise the oil and gas sector in the country can be done outside the budget, successive Governments have preferred to make announcements in the budget for two reasons: it gives the decision a legal sanctity and also projects the Governments stance on the issue, an industry observer said.

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