1. Submitted By:-
Jyoti Kumari(12).
Navneet Bisht(18).
Rahul Kumar(21).

2. BMR Advisors has come out with its
report on energy sector.
•Energy sector being one the key strategic sectors, continues to
receive policy thrust required for sustained growth.
•Proposals to extend viability gap funding for oil and Gas/LNG
storage facilities and oil and gas pipelines will provide much
needed impetus for growth of this sector.
•Extension of ten year tax holiday for undertaking engaged in
generation / generation and distribution of power by a year until
March 31, 2013 is a welcome move.
Other non-tax policy measures including proposed cap on subsidies
(which will subsume fuel subsidy as well) would enable the
Government to achieve a balance fiscal consolidation over the 12th
plan period.

3. Policy announcements
•Viability gap funding extended to oil and gas/ LNG storage facilities
and oil and
gas pipelines.
•To overcome fuel supply constraints in the power sector, Coal India
Limited directed to sign fuel supply agreements with power plants
that have entered into long term Power Purchase Agreements with
distribution companies; such power plants should be
commissioned on or before March 31, 2015.
•ECB allowed to partly finance rupee debt of existing power
projects.
•Issue of tax free bonds for power sector increased to INR 100
billion.

4. Direct Tax Proposals
Oil & Gas
•Income received by foreign companies in Indian currency
in India from sale of crude oil will be exempt, subject to
following conditions:
•Consideration received is pursuant to an agreement /
arrangement entered into with or approved by Central
Government;
•Foreign company and the agreement / arrangement is
notified by Central Government having regard to the
national interest; and
•Foreign company does not undertake any other activity
in India other than receipt of consideration from oil sale.

5. Direct Tax Proposals
Power
•The period for commencing operations for claiming tax
holiday has been extended by one year to March 31,
2013;
•Benefit of additional depreciation at 20 percent
extended to power generation companies;
•Interest payable on ECBs between July 1, 2012 to July 1,
2015 by an Indian company engaged in the business of
generation or distribution or transmission of power,
under a loan agreement approved by the Central
Government, and subject to a maximum rate of interest
approved under such agreement, subject to tax at the
concessional rate of 5 percent.

6. Indirect Tax Proposals
Oil & Gas
•Cess levied under Oil Industry (Development) Act, 1974, as a duty of excise on crude and
petroleum increased from INR 2,500 per tonne to INR 4,500 per tonne effective
immediately. Cess continues to remain exempt for crude oil imported into India.
•Reduced rate of Cess of INR 1,600 for specified fields appears to have been retained.
•Exemption from basic customs duty ("BCD") has been provided to Natural Gas /
Liquefied Natural Gas imported for power generation by a power generating company as
opposed to the earlier rate of 5 percent.
•Direct import of ATF by Indian carriers as actual users allowed. This is likely to help
eliminate VAT cost when a State trading Enterprise imports and sells to the actual users.
•CVD payable on import of dredgers on the following value:
•If the dredger is imported against a lease agreement, the CVD is to apply on the total
lease value of the contract
•If the dredger is imported by the owner, CVD to apply on 120th of the value of dredger
for each month or part thereof for which the dredger has been granted license by the
Director General of Shipping for stay in India
•Important to note that CVD is to apply at 6 percent while BCD and ACD remain
unchanged at Nil rate.

7. Expectation from Budget –Oil, Gas &
Power Sector.
•NABIN BALLODIA-Partner-Tax-KPMG
Companies engaged in exploration and production of petroleum and natural gas are
entitled to 7 year tax holiday. Flexibility to claim such tax holiday in a block of 10 years
should be introduced.
•ANIL REGO-CEO & Founder-RIGHT HORIZONS
The power sector would be expected to get some relief especially in terms of assistance on
the interest to be paid on borrowed capital. The sector is under pressure of high bank debt
which is difficult to service given the cost and pricing structures
•HEMANT KANORIA-CMD-SREI INFRASTRUCTURE FINANCE
Financial health of the State Electricity Board is a major area of worry. Until and unless
this is addressed, this can translate into a banking sector crisis.
•VINAYAK CHATTERJEE-Chairman-FEEDBACK VENTURES
The power sectors problems have such a huge shadow on economic growth that I find it
inconceivable that the finance ministers budget speech will not contain a reference to the
power sector.
•S RAMAKRISHNAN-CFO-TATA POWER
For our international investments, we hope the budget will have some long-term clarity on
the taxation of dividends from them.

8. Announcements on Oil, Gas & Power
Sector Budget.
•LNG exempt from customs duty; positive for GAIL and other gas dist cos,
power cos and fert cos.
•Direct cash subsidy for LPG and kerosene to be positive for oil PSUs.
•LNG exempt from customs duty; positive for GAIL and other gas dist cos,
power cos and fert cos
•Thermal power co exempted from customs duty for 2 yrs
•ECB for rupee-debt of power company; positve for all power companies
•Propose tax free bonds of Rs 10,000 cr for power sector
•To allow ECB borrowing to part finance power projects
•Coal India advised to sign FSA with power plants
•Coal India advised to sign FSA with power plants
•Mkt has not priced in 19% import duty on power equipments: Kotak
Institutional

9. Reaction On Budget-2012
•Prior to the Union budget, the oil companies were proposing 100%
compensation for the under-recoveries in line with year 2008-09, but the
government restrained from any such move in the budget presented.
•The companies were also calling for an extension of the tax holiday for both
exploration and refining activities by10 years, as in case of power sector but this
pitch did not materialize as per the market expectations.
•"All eyes were pinged on the potential decontrol measure on diesel, but the
government backed off from such shift, possibly citing the escalating inflationary
levels in the country.
•Oil and gas exploration companies were seeking an elimination of 5 percent
import tax on LNG but the Union budget on the contrary exempted natural gas
and LNG from basic customs duty.
•The budget also revised cess on crude petroleum oil produced in India to Rs
4,500 per metric tonne. In an effort to cut down the burden on the aviation
sector, the Union budget allowed direct import of aircraft turbine fuel (ATF),
much to the delight of the struggling aviation industry," said C P Krishnan, whole
time director of Geojit Comtrade Ltd.

10. Post Budget Impact On Oil & Gas
Industry: Old Wine In New Bottle
•As expected, the Union Budget 2012-13 has failed to
bring much cheer to the Indian oil & gas industry.
•With its back pushed against the wall and very little
options left to explore, the government was required to
deliver a reformist budget by de-regulating the subsidised
fuels and cutting down on its subsidy burden.
•However, owing to political pressure against the
backdrop of its dismal defeat in the state assembly
elections of UP, Punjab and Goa, the government chose
to not only adopt a more populist measure but also
decided to shy away by completely ignoring to discuss
certain important measures which the markets had
looked forward to.

11. Positive:
•The finance minister (FM) has proposed to
allot VGF for the oil & gas sector.
• This is a positive move as it will help spur
up investment activity in the sector,
especially in the natural gas sector which has
off late found itself in a situation where the
companies have not been able to meet the
rampant demand owing to supply
constraints.

12. Neutral:-
•The finance minister indicated that the government has
undertaken some concrete steps towards successfully
implementing the mechanism of direct transfer of subsidies to
people living below the poverty line.
•According to him, all the three oil marketers have launched LPG
transparency portals to improve customer service and reduce
leakage.
•Certain pilot projects have also been set up in cities of Mysore and
Alwar (Rajasthan) to facilitate the direct reimbursement of subsidy
into the beneficiary’s bank account.
•This move is a very old move and may fail to bring about anything
positive for the sector unless the subsidised prices are de-
regulated.

13. Negative:-
•Under the amendments to the Central
Excise Tariff Act, 1985, the FM has proposed
to revise the ad valorem excise upwards to
14 per cent on petroleum goods.
•This is a negative development, as it would
lead to rise in the prices of petrol and diesel
which will in turn give rise to headline
inflation.

14. Subsidy Bill:-
•Here is where the government has got its calculations completely wrong.
•The subsidy bill for FY12 is expected to have come in at a whopping Rs 6,8841
crore as against last year’s budgeted Rs 23,700 crore.
•Despite this stupendous rise in the subsidy bill and the sharp spurt seen in the
global crude prices, the government, rather than de-regulating fuel prices and
letting the economics of the market decide the prices, has gone on to set a
target of Rs 43,580 crore for FY13 towards fuel subsidy.
•This target for fuel subsidy fails to provide any clarity as we cannot understand
the government’s intentions here.
•With the global crude prices expected to remain put at around the current
levels, the overall subsidy burden for the government over the coming year will
surely add to the pressure.
•The only possible outcome would be the politically sensitive move of hiking the
retail fuel prices. Its inability to do so will prove fatal to its fiscal calculations
going forward.

15. Miscellaneous:-
•The FM has proposed to increase the cess levied
on indigenous petroleum crude oil from Rs 2,500
per MT to Rs 4,500 per MT.
•This would prove to be negative for the oil & gas
explorers like ONGC and OIL who would be
additionally burdened over and above the ad-hoc
subsidy burden that’s clouding their future.
•Private oil explorer Cairn India too would suffer
on account of this development.

16. Conclusion:-
•Despite the need of the hour, the government has refrained from
taking any bold steps fearing a backlash from the common man
who is already dithering under the burden of high prices and slow
growth.
•The only positive moves were the ones to directly transfer
subsidies to end users and to provide VGF for the sector.
•However, while the direct transfer move is a very old one, the VGF
move is also not too great for the sector given the government’s
whimsical interference from time to time.
•Also, the government has not touched upon the extension of the
commissioning date of new refineries to avail the seven-year tax
holiday.
•Finally, as the case has been in the past, the budget has yet again
failed to provide any major impact for the oil & gas sector.