How Reliance Industries, ONGC Stand To Gain From Windfall Tax Cut
The reduction in India's windfall tax will aid what Reliance Industries and its state-run peers earn on every barrel of oil.
India partially rolled back windfall taxes on fuel exports as global crude prices cool, a move that will aid what Reliance Industries Ltd. and its state-run peers earn on every barrel of oil.
The government removed the levy on petrol exports, reduced it on diesel and jet fuel and slashes the tax on crude produced from local fields by 27%, according to a notification.
On exports from special economic zones, windfall taxes on diesel (Rs 13 a litre), petrol (Rs 6) and ATF (Rs 6) have been withdrawn. On non-SEZ shipments, the levy on diesel and ATF has been lowered by Rs 2 a litre and withdrawn fully on petrol. The windfall tax on crude oil production of Rs 23,250 per metric tonne has been reduced to Rs 1,7000/MT.
While it’s difficult to upgrade earnings estimates due to volatile crude prices and the unpredictability of the government's actions, the move in isolation will help upstream oil explorers.
Given that most of RIL exports come from SEZ, the earlier impact on gross refining margin, estimated at $6-13 a barrel by analysts, could now fall in the range of $2-6 a barrel, according to BQ Prime’s calculations.
As GRMs have dropped in general, the actual impact over the previous quarter will be even lower. The net impact may vary depending on assumptions. If crude rises $4-5 a barrel during the quarter on an average versus earlier assumptions, it would translate into a 3-4% rise in earnings per share for RIL.
For the public-sector upstream companies, given the drop in crude prices and reduction in additional tax, net positive impact on realisations is close to $7-8 a barrel for Oil and Natural Gas Corp. and Oil India Ltd., according to BQ Prime’s calculations. That could translate into a 3-4% rise in earnings per share for ONGC for FY23.