Oil sector not favourable for investments now, say experts

01 March 2006

In exclusive arrangement with CNBC

A combination of positive and negative announcements went into the oil sector's kitty. Among the major points; an increase in cess on crude oil production from Rs1,800 / tonne to Rs 2,500 / tonne was announced. Uniform excise rate on inter-state transaction for LPG sales, no change in import duties on petroleum products, no change in excise duty structure for petrol and diesel, and pipeline imports will be given. Project imports status, were also announced.

A customs duty cut was also announced on Naphtha, one of the key raw materials for oil companies. The increase in cess on crude oil production is said to be negative for companies like ONGC.

Subir Raha CMD, ONGC, says, "At this moment what the Budget says is that we shall be paying more as cess, which will go up by about Rs1,800 crore on an annualised basis. The Budget did not address the recommendation of the Rangarajan Committee. I would personally hope that those recommendations are acted upon. At this moment, yes it means additional outgo of about Rs1,800 crore per year." 

He adds that, the Rangaranjan Committee had said that the additional cess should put-off the subsidy and that would have had a neutral impact, but that has not happened.

S V Narsimhan, director, finance, IOC, says, "I am a bit disappointed, since I thought we will have some positives out of the Rangaranjan Committee report, but it was too early as the committee gave the report only in mid-February. But directionally it is a good Budget for downstream oil companies, and the LPG cess has come at a good time. Added to that are the FBT benefits, which will be positive for oil sector.

Market experts also have their take on the policy announcements for oil sector in this Budget.