JOIN USThe Central government and state governments will get Rs 14,900 crore more in the form of royalties and taxes on incremental gas price accruing to public sector firms ONGC and Oil India in the next financial year 2014-15, according to a report by global investment banking and securities firm Goldman Sachs.
The additional revenue will be tad higher than the outgo on account of fertilizer subsidy of about Rs 14,600 crore.
"We note about 65 per cent of incremental gas revenue from price hike would flow back to the central and state governments as royalties, VAT, taxes and dividend, and calculate this amount to be Rs 14,900 crore in FY2015. This would be higher than the incremental fertiliser subsidy of Rs 14,600 crore," the Goldman Sachs report said.
When the Cabinet decided to increase gas prices to $8.4 million British thermal unit, critics had said that the Centre’s annual subsidy bill will go up by much more than Rs 4,000 crore. Many, including some MPs, alleged corporate influence in policy formulation. Some cabinet ministers also questioned the rationale for price revision although officially, the government maintained that the guidelines will help incentivise investment and check cartelization.
Net incremental gas price to ONGC and OIL after payment of VAT and royalty would be $3.82, the report said, adding that of the remaining, $1.30 will go towards corporate tax and another $1 in dividend payments. “After considering 17 cents of dividend distribution tax, the net incremental accrual to ONGC and OIL would be $1.34 per mmBtu,” it said.
Goldman Sachs said that gas price realisation for ONGC and OIL will reduce to $6-7 per mmBtu in case the government asks them to subsidise fertiliser production. $6-7 price is needed for ONGC's deep water/marginal fields to be viable.
In such a scenario, the extra government revenues could be used to support gas-based power plants, where electricity generation cost will go up with rise in gas price.