Budget 2017: HPCL expects custom duty exemption on greenfield expansion

• Posted in OilGas
• on January 27, 2017
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Sharing his expectations from the upcoming Budget 2017, M K Surana, Chairman and Managing Director, HPCL said the company would like customs duty exemptions for greenfield and brownfield expansions. Such exemptions would aid funds infusion into infrastructure projects and also allow for potentially reasonable returns, he added. Surana said that he expects the government to continue with zero duty on crude imports. However, he does not expect the government to tinker with cess for upstream companies and expects lesser subsidy provision in the Budget because he expects the overall subsidy burden on the government to be less. Below is the verbatim transcript of MK Surana’s interview to Latha Venkatesh, Sonia Shenoy & Anuj Singhal.

Anuj: What would be your key expectations heading into the Budget? The government policies have been in favour of companies like yours for last three years?
A: In the way that the control of the prices of motor spirit (MS) and high speed diesel (HSD) has been good for the oil marketing companies as such and the government policies has been in the direction which keeps the oil sector in good humour to that extent. As far key things which we can hope from the Budget, I don’t know whether the government will be doing it, but we have got a lot of expansion plans coming in green field and brown field, new projects as well as expansion, so if the custom duty exemptions can be given for the green field expansion and the brown field expansion then that will be a definite help in infusing more infrastructure projects and ensure that the projects have reasonable returns on that. The second things is that there is Bharat Stage (BS) VI specifications to be implemented effective 2020, so a 100 percent depreciation on those projects. In the past government has considered that as a pollution control project. So that will be another thing which we can look for. The crude import duty is zero right now and we hope it will continue. So these are the two or three main key things which we hope in the Budget.

Latha: What about cess. It went from specific duty of Rs 4,500 per tonne to an ad valorem. Will they tinker that and change the ad valorem in any way?
A: It depends because as the crude prices goes up, the ad valorem thing will continue to be higher and higher which does have impact on the upstream companies. However, we need to see because the expectation is that crude prices will continue to hover in the range of USD 55-65/bbl for some time. So right now the ad valorem rate is there but it is more or less not much of a difference to that extent. So I do not think there will be much change to that effect on that.

Sonia: Are you expecting any kind of hike in the oil subsidies and can you tell us with every dollar increase in oil prices, what does that do to the total under recoveries?
A: Right now there is no under recovery on MS and HSD. It is fully balanced. So overall subsidy burden on the government should be lesser than what it used to be. It will be only on liquefied petroleum gas (LPG) and public distribution system (PDS) kerosene. The consumption of PDS kerosene is also slowly coming down as more and more LPG being brought into the system. So overall the subsidy provision should be lesser than what has been in the past, in my opinion.

Anuj: Kerosene price hike which has been the norm now. It resulted in a lot of consumption, moving away from this. Do you expect that to continue because that would again be positive from economic point of view?
A: The reduction in the kerosene consumption is a result of two-three things. It is not purely because the price is being hiked, because the price is being made closer to the other kerosene, the kerosene which goes into adulteration etc gets reduced and therefore the consumption of kerosene reduces and so the subsidy burden also reduces – that’s one thing. Second, with the push on the Pradhan Mantri Ujjwala Yojana (PMUY) LPG for the below poverty line (BPL) category, so some part of kerosene is getting shifted to LPG and to that extent the ration quota will get reduced for the kerosene and to that extent some of the part of that kerosene which was not going actually for PDS and being used in some other means, will not be done.

Latha: Are you privy to any targets on this BPL LPG front and therefore some estimate of how much kerosene consumption may fall – and that would be good for you profit and loss (P&L), wouldn’t it?
A: Not for our P&L as such but good for the country as a whole. I do not think it will have much impact on oil companies because there is some subsidy part on that but overall from the country point, it definitely will impact.

Latha: Any pressure from the government for higher dividend . It is widely believed that especially because you all have been the beneficiaries of the way the government has handled the subsidy issue. There will be more dividend request. Are you privy to anything?
A: I think its better that I do not comment on this right now.
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