Budget 2025: Oil & gas industry awaits inclusion of petroleum products under GST, compensation for LPG losses

Representative image

With Finance Minister Nirmala Sitharaman set to present Budget 2025-26 on February 1, the oil and gas industry awaits announcements related to inclusion of petroleum products in the goods and services tax (GST) net, compensation for losses incurred by state-run oil marketing companies (OMCs) on subsidised liquified petroleum gas (LPG) and announcements around green energy transition.

Top of the industry wish list is bringing petroleum products under the GST regime.

The Confederation of Indian Industry (CII) said in its budget memorandum that the government should launch GST 2.0, incorporating petroleum products such as petrol, aviation turbine fuel or jet fuel and natural gas under it.

These products have not been included under GST mainly due to opposition from state governments on the grounds that such a move would hit their revenues. 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.

Meanwhile, state-owned OMCs including Indian Oil Corporation Limited (IOCL), Bharat Petroleum Corporation Limited (BPCL) and Hindustan Petroleum Corporation Limited (HPCL) are hopeful of compensation for the losses incurred by the companies on the sale of LPG cylinders below cost, according to media reports.

IOCL booked under-recovery of Rs 8,870.11 crore for the first six months of FY25 on the sale of cooking gas cylinders as the retail selling price was less than market-determined price. BPCL and HPCL too have reported under-recovery on sales of LPG cylinders. This is against the backdrop of high global prices of the fuel as the country is dependent on LPG imports for the majority of domestic consumption.

In the upstream sector, industry expects approval of the Oilfield (Regulation and Development) Amendment Bill. Aimed at boosting investments in the oil and gas exploration sector, the bill is expected to provide policy stability and promote ease of doing business in the sector.

The bill proposes to introduce ‘petroleum lease’ to separate oil and gas exploration projects from mining in a bid to resolve complexities around land and environmental clearances, which has often resulted in project delays, while also expanding the definition of mineral oils, among other changes.

“The recent winter session of parliament saw the Oilfield (Regulation and Development) Amendment Bill, 2024 being passed in the Rajya Sabha, and the industry is hopeful of it being passed during the upcoming budget session in the Lok Sabha as well. The amendments proposed in the bill are reformist, and the streamlining of regulatory clearances and arbitration processes will improve ease of doing business, particularly for unconventional hydrocarbons like shale oil and coalbed methane. The recent decision to scrap windfall taxes on upstream production also goes a long way towards reinforcing confidence of industry going ahead,” said Kapil Garg, chairman and managing director, Oilmax Energy Private Ltd.

Focus on energy transition

As the sector progresses towards achieving the net-zero emissions target, it is hopeful of announcements around green energy transition. The oil and gas industry, one of the biggest contributors towards greenhouse gas emissions, is investing in setting up green hydrogen and compressed biogas plants to achieve net-zero targets.

The previous budget had an allocation of Rs 19,700 crore to spur the development of renewables, green energy, biomass and other forms of energy transition initiatives.

“Enhanced renewable energy investments can further accelerate our green energy transition, while a balanced energy policy from NITI Aayog could integrate sustainable growth, employment and environmental priorities. We urge consideration of PLI (production-linked incentive) schemes for sectors essential to supply chain decarbonisation, alongside support for GH2 (green hydrogen) economies and technologies,” said Manish Dabkara, chairman and managing director, EKI Energy Services.