Mayank Asher, CEO of Cairn India says that 20 percent ad valorem cess will bring slight relief for energy companies.
The Union Budget 2016 had two major developments for the energy sector, says Mayank Asher, CEO of Cairn India.
One was on gas produced from offshore fields and the government recognized need for higher gas price, he says adding that “the Budget allowed proper market pricing reference, which was very good.”
The other development was on the cess side. “Cess burden was manageable at USD 100 a barrel, but when oil process went down to USD 30 per barrel, the cess burden went from 10 to 30 percent, which was unmanageable.”
The government has shifted cess from fixed to ad valorem. “We were hoping for ad valorem rate of 5-8 percent, but government has put it at 20 percent.”
Below is the verbatim transcript of Mayank Ashar’s interview with Reema Tendulkar & Nigel D'Souza on CNBC-TV18.
Nigel: Are you disappointed that the government is not taking any real actions to support the upstream companies. Had the ad valorem rate come in at around 10 percent would it be better would it have a much more positive impact on your company and on upstream companies?
A: I think the ad valorem rate of 5 to 8 percent is what we were recommending would have been much better and let me just give small example. I was in CERAweek in Houston last week and the president of Mexico was there along with the oil minister and they both underscored the need foreign investment.
They repeatedly said not only will the borders open for investment but most importantly their fiscal burdens where competitive. That is the key challenge.
The ministry of petroleum over the last several years have been progressively coming up with reforms so cess is a key part of that but there is more. At the end of the day it doesn’t matter what kind of taxes or burdens you call it the total burden on the industry needs to be such that it doesn’t crowd out fresh investment both with exiting players as well as new players.
So, we thanks the government for first step and as far as cess is concerned we would suggest perhaps there are subsequent rounds of discussion the industry and the government can have to make sure that the both parties’ needs are met in the future.
Reema: Coming back to the issue of the cess on crude so it will not impact India but it will impact the likes of ONGC and Oil India.
A: That is not true it way because the cess rate for Cairn India, ONGC and Oil India is very similar. What we are saying is there was some reduction in cess not as much as we had hoped for. Cess, one should not think about it as a tax break. It is a burden basically and when the oil prices come down quite a bit that burden percentage is very high.
So, we were hoping that cess would be reduced more. We acknowledge the fact that it has been reduced somewhat. However, we will continue to dialogue together the industry, ONGC with the government to make sure that at the end of the day that with the low oil prices both the government and the industry they both win together.
Nigel: What could be the cash per share in the books of the company?
A: I believe it is of the order about Rs 130 per share, of that order, give or take some.
Reema: What is the update on the merger with Vedanta?
A: I think you have to ask Vedanta that question but my understanding is broadly in terms of the merger process it is broadly on track. Clearly there are some developments that were promised for this quarter and they will be forthcoming. Some of the earlier milestones have been met, so I don’t have the exact schedule but I am liked to believe that it is broadly on track.
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