Awaiting some booster shots

In her maiden Budget, will Nirmala Sitharaman pay back the energy sector which has not only earned the government revenues, but also played a key role in winning the elections? While petroleum tax filled the Central and State governments’ coffers, schemes like Pradhan Mantri Ujjwala Yojana and Pradhan Mantri Sahaj Bijli Har Ghar Yojana (or Saubhagya) won them votes.

Like her predecessor, Sitharaman has an advantage of “soft crude oil prices” or less volatile prices to play around with the economic numbers and manage her fiscal.

In all likelihood Sitharaman may take an average crude oil price of $65-$68 a barrel as she works on her fiscal maths for the Union Budget 2019-20.

“In fact, last time when crude had hit $70 a barrel the then Finance Minister (Arun Jaitley) had maintained that he is comfortable with the average of about $68 a barrel he had taken. The BJP-led government has been lucky as far as crude oil prices are concerned,” said a person in the government.

The oil and gas industry is not expecting much from the Finance Minister, but going by what was laid out in the interim Budget, some mention for popular schemes like Ujjwala could be there.

The interim Budget had also highlighted the government’s concern over import dependence on crude oil and natural gas. Goyal had spoken about measures being taken to moderate the increasing demand through usage of bio-fuel and alternative technologies, as well as the urgent action to increase hydrocarbon production in the country to reduce imports. Whether Sitharaman will take these forward remains to be seen.

GST regime

Most of the issues concerning the hydrocarbon sector are to do with theGoods & Services Tax (GST). The industry has been demanding that natural gas and other four petroleum products be brought under the GST. The has also been a demand for nil rate of Customs duty on import of LNG and exempting CNG (conversion of natural gas into CNG) from Central Excise Duty. How much will the Finance Minister do remains to be seen?

The industry, under the aegis of the Federation of Petroleum Industry, has pitched for reduction in rate of OID (Oil Industry Development) Cess, which is levied only on domestically produced crude oil. The cess, it feels, places domestic crude oil production at a significant disadvantage vis-à-vis imported crude oil. This levy, thus, is against the very spirit of “Make in India”, the industry has argued.

It has also suggested that the Customs duty being levied at the rate of 5 per cent on liquid as well as gas pipeline projects be reduced to nil.

Those closely involved with the Budget-making exercise feel that power and renewables may get some additional booster shots, while hydrocarbons may just have to wait a little.

Renewables sector

Going by what Goyal had said in the interim Budget while reiterating India’s commitment to promote renewable energy — setting up the International Solar Alliance — and that the country’s installed solar generation capacity has grown over 10 times in the last five years, one could expect something for this segment. Besides, the push for electric vehicles and promoting energy storage devices that will help bring down import dependence may get some space.

In keeping with India’s commitment to climate change and notification of the Ministry of Environment, Forest and Climate Change, it has become mandatory for the power plants to install Flue-Gas Desulphurisation (FGD) system in the existing and upcoming thermal power plants. But, the power companies are facing difficulties in funding of FGD, as the implementation deadline hardly leaves any time to mobilise funds.

Besides, most of the banks have either exhausted their exposure limit to the power sector or are unwilling to increase their exposure considering the prevailing situation of financial stress afflicting the power project developers caused primarily by lack of timely payments by Discoms and insufficient coal supply. The industry expects Sitharaman to address this.

Meanwhile, the players in the solar energy segment, under the aegis of All India Solar Industries Association, have sought incentives such as subsidies for power, capital, interest and depreciation as well as duty-free import of manufacturing equipment to keep the industry alive.

To reap the benefits of the ‘Make in India’ initiative, the association has also asked for raising export incentives for the solar module manufacturers. The association said that to make schemes like KUSUM (Kisan Urja Suraksha evam Utthaan Mahabhiyan) and SRISTI (Sustainable Rooftop Implementation for Solar Transfiguration of India) move at a faster pace, the basic tariff issues need to be resolved.

ICRA expects clarity on the status of safeguard duty on imported photo-voltaic (PV) modules post July 2020, which would have a bearing on the solar bid tariffs by the developers as well as on the development of domestic PV module-manufacturing capacity.

While the wishlist of the energy sector is endless, what is common is the need for clarity on the policy front so that there is more private participation as the industry also is a job creator. Sitharaman can infuse fresh lease of energy in this sector by ensuring consistency in policy and encouraging investment.

(With inputs from Twesh Mishra)

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