Silent on subsidies

April 20:

ANAND KALYANARAMAN

For the hydrocarbon sector, the BJP’s manifesto holds out two broad promises. One, the party will expedite oil and gas exploration in the country. Two, it will set up gas grids to make gas available to households and industry. These promises, if fulfilled, will benefit domestic hydrocarbon players.

There have been few major hydrocarbon finds in the country over the past decade. Discouragingly, many global energy companies have relinquished blocks due to approval delays, and recent auctions of blocks have met with weak response.

If a BJP-led Government provides better operational and financial incentives to explorers, and expedites approvals, interest should revive. Among others, state-owned ONGC, Oil India and GSPC, which also hold high-potential blocks, should benefit. This will fit in with the BJP’s aim of reducing reliance on imports.

Expansion of the gas pipeline network should benefit transmitters GAIL (India) and Gujarat State Petronet Ltd. The pipeline network is currently concentrated in West and North India. GAIL has been laying pipelines in the South, but run-ins with State Governments over passage through farmlands have held up work. These issues will need to be sorted out. Expanding the network to provide CNG to vehicles and piped natural gas to households can also provide a boost to city gas distributors Indraprastha Gas and Gujarat Gas which will have a much larger playing field.

Fuel subsidies

But the BJP’s manifesto is silent on two key aspects. The first is about its stand on fuel subsidies. Will it restart the monthly diesel price hikes? If it does, this will provide a leg-up to public sector oil marketing companies (Indian Oil, HPCL and BPCL) as well as ONGC, Oil India and GAIL which share a chunk of the under-recovery burden. Also, the party has not spelt out its stance on the contentious domestic gas price hike. If, amid allegations of crony capitalism, gas prices are hiked, beneficiaries will include ONGC and Oil India, which produce 80 per cent of the gas in the country and, of course, Reliance Industries.

Source: http://www.thehindubusinessline.com/features/investment-world/article5931163.ece?utm_source=RSS_Feed&utm_medium=RSS&utm_campaign=RSS_Syndication