Boosting the energy and natural resource sector

"We can create a more sustainable, cleaner and safer world by making wiser energy choices."-Robert Alan Silverstein

There is an urgent need to shift our power supplies from oil, coal, and natural gas to wind, solar, geothermal, and other renewable energy sources.With the government intending to meet its obligations under climate change, it is important that renewable energy sector is given a boost.

Regulatory clearances

The NDA government has aimed at improving and enhancing India's installed capacity but have fallen short of its own expectations. The government should attempt to revive stalled infrastructure projects by providing single-window clearances (which has been a long standing demand from the industry) and announce measures for revival of stranded and under-utilised power generation capacities to meet its ambitious target of generating 100,000 MW of solar energy by 2022.

The government intends to invest more than Rs 6 trillion in power sector alone by 2022. Solar power can contribute to the long-term energy security of India, and reduce dependence on fossil fuels that put a strain on foreign reserves and the ecology as well.

The industry also expects the government to continue to provide the fiscal incentives provided to the power sector and expects the introduction of policy and regulatory measures to implement 'renewable purpose obligations', which is critical for achieving 'power for all'.

Oil Industries Development (OID) Cess

Oil Industry Development (OID) Cess is levied on indigenous crude oil and natural gas produced as a duty of excise. The cess was levied at a fixed rate and has been increasing with increase in oil prices. The rate set in 2012 (which still prevails) is Rs 4,500 when the crude prices were over $100. However, when the crude prices reduced substantially (hovering to around $50 currently), there has been no reduction in cess.

While New Exploration Licensing Policy (NELP) blocks are exempt from payment of cess, pre-NELP and nomination blocks are liable for payment of cess. The cess is not recoverable and thus constitutes about one-third of the oil price. At the present level, upstream oil companies are not in a position to absorb the applicable OID Cess.

It is likely that this Budget will announce an ad valorem rate of cess at around 8-9 per cent. This will encourage the domestic exploration and production (E&P) sector and pursue India's vision of reducing its import dependence on crude oil by at least 10 per cent by 2022. It will also spur investments for additional oil from existing players and create a level playing field between pre-NELP and NELP participants.

"We simply must balance our demand for energy with our rapidly shrinking resources. By acting now we can control our future instead of letting the future control us" ~ Jimmy Carter

Hemal Zobalia is Partner, Jimit Devani - Director, and Archita Modi - Deputy Manager of Deloitte Haskins and Sells LLP