India Oil Firms Seek Tax Breaks to Expand Domestic Drilling

Explorers in the world’s fastest-growing oil market are seeking lower taxes on crude produced domestically to encourage fresh drilling as India tries to reduce its dependence on energy imports.

State-run Oil & Natural Gas Corp. and the biggest private producer Cairn India Ltd. want Finance Minister Arun Jaitley to at least halve the tax on crude oil production in the federal budget due Feb. 1, Bloomberg reported.  India surprised some explorers last year with its 20% levy on crude produced locally, moving from a fixed charge. Companies pay more now with crude near $50 a barrel than they did under the old system when it was double the price.

“Globally, given the low oil price scenario, governments have provided incentives to stimulate and attract investments,” said Sudhir Mathur, interim chief executive officer at Cairn India. “In India, the tax rate of 20% acts as a disincentive to increase production and commit incremental investments.”

Attracting investments to boost output from local fields is key for Prime Minister Narendra Modi, who has made energy security a priority and set a target of cutting oil imports by 10% in the next five years. Reducing the levy will help explorers including ONGC and Cairn India, which Oil Minister Dharmendra Pradhan estimates will spend $25 billion by the end of this decade. 

India’s hydrocarbon resources are highly undeveloped and production has been declining for the past several years, prompting the government to nudge companies to invest in reversing the fall and increase energy supplies.