Budget 2024: Oil and gas industry hopeful of energy transition funds, boost for cleaner fuels

Industry players expect that the focus of the upcoming budget would be on energy transition and net zero-emissions targets for oil PSUs.

With the Union Budget to be presented in less than a month, the oil and gas industry hopes that the government would allocate some funds for energy transition, and implement reforms to promote natural gas consumption.

Finance Minister Nirmala Sitharaman is set to present Budget 2024 on February 1 in Parliament.

All eyes would be on the finance minister for any comments on the industry’s long-standing demand for the inclusion of petroleum products under the Goods and Services Tax (GST) regime.

Sitharaman has, however, said “no spectacular announcements” should be expected from the upcoming budget as the full budget for FY25 would be presented after the formation of a new government.

General elections in the country are slated to be held in April-May 2024.

Industry players expect that the focus of the upcoming budget would be on energy transition and net zero-emissions targets for oil PSUs.

In the Union Budget for FY24, Sitharaman allocated Rs 30,000 crore for capital investments towards energy transition and set net zero-emission objectives for state-owned oil marketing companies (OMCs). However, the amount has not been allocated to the OMCs yet.

Experts say that the allocation to oil PSUs might be lower in the coming budget.

“Oil companies, such as IOCL and BPCL, have announced rights issues and the government was supposed to put in their funds. While the government would put in some funds, it is expected to be less than the budgeted amount. This would mainly be done to ensure that the fiscal deficit is under control. So, the oil PSUs may see lower budgetary support in the current year,” Suman Chowdhury, Chief Economist and Head of Research, Acuite Ratings & Research, said.

Meanwhile, global tax consultancy and audit firm Deloitte said that the government is expected to divert some of its expenses towards improving the energy sector, especially green and sustainable energy.

“In this budget, the government’s focus should be on the transition from carbon-dependent to energy-efficient policies. Financial services players need to play an important role in combating climate changes. Therefore, incentivising investment in green bonds and renewable energy business would help India achieve net zero-emission targets by 2070 and meet 50 percent of energy requirements from renewable energy sources by 2030,” said Deloitte in its Budget expectations.

Additionally, the industry is also hopeful that the budget might include some reforms for city gas distribution (CGD) players to boost consumption of natural gas in the country.

“It is possible that we might see some incentive structure for CGD players to improve the viability and execution of projects,” said Kapil Garg, Founder and Promoter, Oilmax Energy Pvt Ltd.

Long-standing demand of GST on petroleum products

The oil and gas industry players have again urged the government to consider bringing petroleum products, such as petrol, diesel, natural gas and aviation turbine fuel (ATF), under GST.

“Petroleum products are currently outside GST purview. There has been a long-standing demand that they should be included within GST to enable free flow of input tax credit and to avoid stranded taxes,” said Prashant Vasisht, VP & Co-Head, Corporate Ratings, ICRA.

Despite the industry’s demand, petroleum products have not been included under GST, mainly due to the opposition from state governments. To be sure, any decision on GST is taken by the GST Council, a joint forum of the Centre and the states. But a recommendation in the Budget by the Finance Minister, who heads the Council, can be a big positive.

Other demands

The PHD Chamber of Commerce and Industry (PHDCCI) said simplifying foreign direct investment (FDI) policies for sectors, such as PSU oil refineries and defence, could lead to better inflow into the country.

“The complexity and variability of sector-specific FDI caps and restrictions in India pose challenges to investors. Simplifying these policies can reduce uncertainties and make India more attractive. Concerns about subjectivity and potential delays in national security reviews should be addressed. Harmonisation of procedures and approvals are essential to level the playing field,” said PHDCCI in its pre-budget memorandum.

Additionally, the industry is hopeful of announcements in the budget related to the discontinuation of windfall tax, and oil and gas industry being categorised as infrastructure sector to avail improved financing and credit opportunities, and exempting LNG from customs duty.