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Ask an Expert - Oil and gas

Deepak Mahurkar

Leader (Oil & Gas), PwC India

Topic: Oil and gas

Countries have used taxes to achieve multitude of objectives, and we now are lucky to be able to do so since the price has been decontrolled. The promise of a transparent mechanism for determining how much subsidy oil- & gas-producing public-sector oil companies will share with oil-marketing firms will help improve minority investors' sentiment, and help the companies plan their budgets. The healthy refinery margins in the past four quarters or so are working very well for the sector. Companies are able to plan newer investments, look at performance improvement and enhance capacity. Getting ready with additional refining capacity has become another priority for the country. India has committed itself to improving fuel quality in next five years. Resultantly sizeable investments will flow into refining sector.

Minister Dharmendra Pradhan said during the Make in India week that the govt was looking into a new crude oil import policy for spot purchases by state-owned refiners. What is your take on this?


State-owned refiners will get to tap opportunities to procure crude oil at optimal price. It is a matter of companies’ internal policies to be aligned to the need of the business. Any such change will also place a demand on participating companies of new skills, added competencies, technology frameworks, process enhancements, market understanding and change in delegated authority. Global companies have met with graded success in such programmes. They are pushing the envelope for facing competition and bringing value to customers.

Should the government look into providing a bailout package of sorts in the current Budget for upstream companies, which have been hit by low oil prices?


During the NELP regime, companies have competitively bid for assets. It is unlikely that the government would infuse bailout funds into such companies or assets. The contracts neither provide for windfall gains stripping nor floor for triggering any support. In nomination blocks and pre-NELP awards, too, such provisions aren't available. When the upstream sector started enjoying international parity pricing for crude oil, it was implicit that companies will enjoy highs and bear lows. Notwithstanding these, other steps like fiscal measures might be used before a bailout is considered. A reduction or removal of cess, concession in taxes and royalties are some such examples. In an industry whose financial performance depends on external environment, a one-time bailout might not suffice. The current low crude oil price may last longer than expected, and hence systemic response rather than a one-time response will be considered, if situation goes out of hand.