Centre-states may discuss early inclusion of natural gas into GST fold
With GST revenue collections making a rebound post the disruptions caused by the second wave of Covid pandemic, the Centre is likely to initiate dialogue with states for inclusion of petroleum products under the new indirect tax fold. Sources privy to the development said that based on the Petroleum Ministry’s suggestion, the Centre may take up with GST Council the issue of bringing natural gas under the Goods and Services Tax (GST) regime to begin with before the entire oil and gas sector is brought under it. The 45th GST Council meeting is scheduled on September 17, 2021 at Lucknow. Though the council members will discuss several pending issues such as states compensation, revision of GST rates on Covid essentials, inverted duty structure, the Centre is also likely to take up the case for early inclusion of gas into the new taxation fold. With revenue position remaining strained due to Covid-19 outbreak, states have been reluctant to consider bringing high revenue generating petroleum products under GST fold. But with GST collections improving substantially this year remaining above the Rs 1 lakh crore psychological-mark in most months of FY22, the Centre feels it is the right time to push for tax reforms in the oil and gas sector as well with the inclusion of gas helping in plan to develop a gas-based economy in the country. Inclusion of gas would not pose a challenge for the GST Council as it is largely an industrial product where a switchover to the new taxation would not be difficult. The revenue implication for the states is also low in the case of this switchover. “States are in a fairly better position now with GST revenue hitting over Rs 1 lakh crore-mark for the past few months and Centre has also improved their liquidity position through additional borrowing schemes. This should make phased inclusion of petroleum products under GST easier for the council,” said an official source in the oil ministry. GST levy on natural gas would help state-run oil companies such as ONGC, IOCL, BPCL and HPCL to save tax burden to the tune of Rs 25,000 crore as they would get credit on taxes paid for inputs and services. Tax credits are not transferable between the two different taxation systems. The Steering Committee for Advancing Local Value-Add and Exports (SCALE) chaired by Mahindra & Mahindra MD & CEO Pawan Goenka in its report to the commerce ministry has also batted for provision of input tax credit of natural gas to make its prices more competitive. This could happen once it is included in GST. Sources said Council could consider a three-layered GST structure for gas where residential piped natural gas (PNG) is taxed at a lower rate of 5 per cent, commercial piped natural gas could be taxed at a median rate of 18 per cent, and car fuel CNG could be taxed at a maximum rate of 28 per cent. However, such a proposal has not yet been drafted and it could be put on table after consensus is arrived at inclusion of gas under GST. Gas sales, including CNG and piped gas supplies, attract VAT ranging from 5-12 per cent. As part of its efforts to build consensus with the states on GST launch, the government had decided to exclude five petroleum products — crude oil, petrol, diesel, ATF and natural gas — from the list of items placed under GST, but included products such as cooking gas, kerosene and naphtha in the new regime.
Arun Kumar Singh takes charge as Chairman and Managing Director of BPCL
Bharat Petroleum Corporation Limited (BPCL), a ‘Maharatna’ and a Fortune Global 500 Company has announced the appointment of Arun Kumar Singh as the Chairman and Managing Director of the company and consequently he has taken charge yesterday. A Mechanical Engineer by qualification, Arun Kumar Singh was earlier Director (Marketing) on the Board of the company, holding additional charge of Director (Refineries) and Director (Finance). In his more than 36 years of experience in Oil & Gas industry, he has headed Business Units and Entities in BPCL such as Retail, LPG, Pipelines, Supply Chain Optimization, etc. He also held the position of President (Africa & Australasia) in Bharat PetroResources Ltd., a wholly owned Subsidiary of BPCL, engaged in exploration of Oil & Gas, largely overseas. He is also Chairman of Indraprastha Gas Ltd. a Joint Venture CGD Company, listed on Indian bourses. He is also a Director on the Board of Bharat Gas Resources Ltd., a wholly owned subsidiary of BPCL, engaged in Natural Gas business; on the Board of Bharat Oman Refineries Limited, a subsidiary of BPCL engaged in Refining business; and he represents BPCL on the board of Petronet LNG Ltd. (PLL), a Joint Venture Company, listed on Indian bourses. A Fortune Global 500 Company, Bharat Petroleum is the second largest Indian Oil Marketing Company and one of the premier integrated energy companies in India, engaged in refining of crude oil and marketing of petroleum products, with a significant presence in the upstream and downstream sectors of the oil and gas industry. The company attained the coveted Maharatna status, joining the elite club of companies having greater operational & financial autonomy. Bharat Petroleum’s Refineries at Mumbai & Kochi and subsidiary Bharat Oman Refineries Ltd., at Bina, Madhya Pradesh have a combined refining capacity of around 37 MMTPA. Its marketing infrastructure includes network of installations, depots, retail outlets, aviation service stations and LPG distributors. Its distribution network comprises over 19,000 Retail Outlets, 6,600 LPG distributorships, 733 Lubes distributorships, 123 POL storage locations, 52 LPG Bottling Plants, 60 Aviation Service Stations, 3 Lube blending plants and 4 cross-country pipelines.
Cairn accepts $1bn refund offer, to drop cases against India within days: CEO
UK-based Cairn Energy PLC on Tuesday said it will drop litigations to seize Indian properties in countries ranging from France to the US, within a couple of days of getting a USD 1 billion refund resulting from the scrapping of a retrospective tax law. The firm, which gave India its biggest onland oil discovery, termed “bold” the legislation passed last month to cancel a 2012 policy that gave the tax department power to go back 50 years and slap capital gains levies wherever ownership had changed hands overseas but business assets were in India. The offer to return money seized to enforce retrospective tax demand in lieu of dropping all litigations against the government “is acceptable to us,” Cairn CEO Simon Thomson told PTI in an interview from London. Cairn will drop cases to seize diplomatic apartments in Paris and Air India airplanes in the US in “a matter of a couple of days” after the refund, he said adding Cairn’s shareholders are in agreement with accepting the offer and moving on. “Some of our core shareholders likes BlackRock and Franklin Templeton agree (to this). Our view is supported by our core shareholders (that) on balance it is better to accept and move on and be pragmatic. Rather than continue with something negative for all parties which could last for many years,” he said. Seeking to repair India’s damaged reputation as an investment destination, the government last month enacted new legislation to drop Rs 1.1 lakh crore in outstanding claims against multinationals such as telecoms group Vodafone, pharmaceuticals company Sanofi and brewer SABMiller, now owned by AB InBev, and Cairn. About Rs 8,100 crore collected from companies under the scrapped tax provision are to be refunded if the firms agreed to drop outstanding litigation, including claims for interest and penalties. Of this, Rs 7,900 crore is due only to Cairn. “Once we get to final resolution, part of that resolution is us dropping everything in terms of litigation. We can do that within a very short period of time, just a matter of a couple of days or something,” Thomson said. “So we are preparing on the basis of getting this resolution quickly, all these cases being dropped, and putting all this behind.”
Cairn Energy weighs $700 mln in shareholder returns if India row settled
Britain’s Cairn Energy said on Tuesday it plans to return up to $700 million to shareholders via a special dividend and a share buyback this year, provided its lengthy dispute with India over certain tax claims is resolved in the near term. The oil and gas producer, which has major operations in the South Asian country, said it was considering entering into statutory undertakings with the Indian government over changes to a retrospective tax law that is at the heart of the row between them. The news comes a month after India proposed scrapping the controversial 2012 law and said it would refund disputed amounts to companies. Cairn was awarded damages of over $1.2 billion last year by a Dutch court, which was challenged by New Delhi. “Progress in resolving our Indian tax issue and active portfolio management leave Cairn well-positioned to deliver growth from a sustainable business,” Cairn Chief Executive Officer Simon Thomson said in a statement. The company also posted a smaller loss in the first-half of $47.4 million and narrowed its 2021 outlook for production from its British assets to a range of 17,000 to 19,000 barrels per day. London-listed Cairn, though in talks with India, has also been pursuing options to seize Indian assets overseas, including those of national carrier Air India, in the absence of a settlement.
BPCL cooking gas customers to continue getting subsidy, post privatisation
Sell-off bound Bharat Petroleum Corporation Ltd (BPCL) has created a separate platform for its cooking gas operations that runs government’s subsidised LPG cylinder scheme where subsidy amount is transferred directly into the accounts of consumers. Creation of separate platform was mandated as part of the sell-off process to ring fence the new owners from this subsidy scheme that could function uninterrupted with government transferring subsidy to consumers even after privatisation of the BPCL. The government is selling its entire 52.97 per cent shareholding in BPCL to a strategic investor. There were doubts among potential bidders how the subsidised cooking gas scheme would be run post the management of BPCL getting transferred to new private sector owners. If companies were to take the tab of subsidy, it would alter the valuation of BPCL. It has now been decided that cooking gas customers will continue receiving subsidy into their bank accounts post privatisation of PSU oil refiner. The government has clarified that the present system where the oil companies pay the subsidy amount and the government reimbursed such payments would continue. Creation of a separate platform would help keep subsidised cooking gas operation separate. This will allow identification of beneficiaries and transfer of subsidy without the scheme creating confusion for new owners. The LPG price for cooking for consumers under PAHAL is subsidized by the government wherein the subsidy quantum given to the PAHAL (Pratyaksha Hastaantarit Laabh) consumers by way of DBT, is the difference between the market-determined price and the subsidized price. Private oil companies such as Reliance, Nayara Energy do not get any subsidy support from the government for cooking gas. So if these companies were to sell domestic LPG cylinders, it would be priced at market rates. The government has allocated Rs 12,995 crore as petroleum subsidy for FY-22, a drastic cut over Rs 40,000 crore provided in the previous year. With regard to BPCL, the government hopes to invite price bids from prospective investors soon. Besides Vedanta Group, two American funds – Apollo Global and I Squared Capital – have submitted their expressions of interest (EoI) for BPCL.
ONGC’s plan to merge refining subsidiary MRPL with HPCL gets delayed
State-run oil and gas explorers ONGC’s plan to complete merger of its refining subsidiary MRPL with recently acquired HPCL to align its upstream and downstream operations into two verticals has got delayed. The process is now expected to be completed by FY24 as ONGC’s plan to consolidate its refining and petrochemicals business around MRPL first itself is taking a lot of time, government sources privy to the development said. The proposed merger would only follow this consolidation exercise. Sources said that the process of merging ONGC’s two oil refining subsidiaries, Hindustan Petroleum Corp Ltd. (HPCL) and Mangalore Refinery and Petrochemicals Ltd.(MRPL), will be started only after the company completes merging ONGC Mangalore Petrochemical Ltd. (OMPL) with MRPL. “The merger (HPCL and MRPL) under conservative assumptions could happen by FY24-end as MRPL-OMPL merger has to happen first and that business should continue for five years with FY19-end to be the effective date of their merger at the least. This process itself is taking time,” company officials privy to the process said. Replying to shareholders at 33rd annual general meeting of MRPL last week, the company’s chairman Subhash Kumar has reportedly said that MRPL-HPCL merger is definitely the on cards but OMPL’s merger with MRPL, expected to be completed in 2021 itself was taking time. As per the plan finalised earlier, MRPL may, become a subsidiary of HPCL first. Under liberal assumptions, the merger could start in 1-2 years as OMPL gets merged with MRPL by then. OMPL has now become a 100 per cent subsidiary of MRPL. The board of MRPL on October 19 last year had approved acquisition of 49 per cent stake in OMPL from ONGC. This has paved the way for merging OMPL with MRPL. Once this is done, the next stage of merging MRPL with HPCL will begin. OMPL, a subsidiary of MRPL, is a joint venture between ONGC and MRPL, set up for value addition of excess naphtha and aromatic streams available from MRPL refinery. The complex is the largest single stream unit in Asia to produce 914 KTPA Para-xylene and 283 KTPA Benzene. MRPL is a subsidiary of ONGC and schedule ‘A’ Miniratna, Central Public Sector Enterprise (CPSE) under the Ministry of Petroleum & Natural Gas. As of December 31, 2020, ONGC held 71.63 per cent and HPCL held 16.96 per cent stake in MRPL.