The Indian petroleum sector has witnessed major shifts in policy matters over the last few years with the dismantling of the APM (administered pricing mechanism) and entry of private players into retail marketing business.

The required effect of these measures was to bring in more transparency, however, not much has changed with the government still in control of product prices.

Key Positives Change in the current price revision policy from fortnightly to monthly or quarterly would result in higher stability. Rationalization of tariffs on key petroleum products such as MS (petrol) and gradual phasing out of subsidies is expected to provide a big boost for players in the sector, as it will positively affect marketing margins in the medium term. Approval to acquire oil fields abroad shall help reduce import dependence and at the same time induce better technology as Indian majors compete in the global arena. Entry of private players in the marketing segment likely to result in high competition and better quality products resulting in benefits to the consumers.		Key Negatives Demand for petroleum products continues to be low while refining capacities are being hiked resulting in surplus products. Only certain products such as aviation turbine fuel (ATF) and LPG have registered better growth Delay in the appointment of the independent petroleum regulator may hamper operational freedom and players will continue to dependent on the government for policy related issues. Sharp spurt in crude prices have a negative impact on the players' margins in the short term, as product prices have a tendency to increase gradually due to political ramifications. Subsidies on LPG and kerosene are likely to play havoc on oil marketing companies as government extends the phasing out of the subsidies by one more year.

Budget 2005-06: Complete Coverage

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