Windfall tax: India Infoline sees no short-term impact

Private oil companies may have to pay windfall tax, reports CNBC-TV18's Sajeet Manghat. If approved, this may impact earnings. Cairn, Essar and Reliance Industries may be the worst hit. Windfall tax will have to be imposed on exploration and production companies. There is no major private sector E&P company as all private E&P companies are in the preliminary stage of exploration.  Barring Cairn, no private E&P company produces significant oil. Oil from private E&P firms is less than 5% of total requirement.

The major E&P company in the public sector space is ONGC. Across the board, this windfall tax will hit ONGC the most. The National Exploration and Licensing Policy and production sharing agreement signed till now for all oil and gas blocks will have to be changed. NELP & PSA are international contracts. Also, the government has a profit share in all oil and gas blocks.

Prayesh Jain, Oil & Gas Analyst, India Infoline, said the tax has to be implemented in FY09 or FY10 onwards. "Reliance and RPL could get impacted, if it is imposed in the current year. As per current news, no major stocks in should get impacted. These are just short-term rumors that have come out."

Excerpts from CNBC-TV18’s exclusive interview with Prayesh Jain:

Q: In event of such a drastic step being taken of a certain windfall tax, how do you position yourself on the likes of Cairn and Essar Oil or Videocon and even on the private refineries, like a Chennai Petroleum or an RPL?

A: For a company like Cairn to be impacted by such a move, the tax has to be implemented from FY09 or FY10 onwards, when the Rajasthan production starts. Refiners like Reliance and RPL could get impacted if it is imposed in the current year. But overall, as per the current news, no major stocks in the recent lot should get impacted.

Q: You are not selling on this news are you?

A: These are just short-term rumors that have come out. Intraday, there has been selling. The government has to decide whether this is a long-term thing that is happening and what are the long term crude oil price assumptions like.

We have to build this into a model and consider the long-term crude oil price and the tax implication. So, in that respect, there is no clarity and to build this into a model is very difficult. We are not huge sellers and are still positive on Cairn.