ET Now: This budget has been pretty negative for oil explorers. Ad valorem duty has not been as per estimates. What is your reaction on this?
Mayank Ashar: First my reaction on the budget and then on the energy sector. We understand that the finance minister had to look at all stakeholders across the country and times are very challenging. So they had to find a variety of initiatives and stitch them together to a coherent whole with reforms in the agricultural sector, road sector, skill development, infrastructure and energy sectors. So we were hoping for some improvements and clearly we want to acknowledge that reforms have taken place. If I look at the new regime on the gas pricing for deep offshore field to get full import parity, that is very significant. It is something that the industry has been asking for a long time. So getting full recognition and implementation of that is very noteworthy and the backdrop to the budget is that the ministry has been doing some reforms on its own. I was at Houston last week where the Indian marginal fields were announced. So I see this as not a one shot deal but a continuum of openness of energy sector for investment in this country. We import three quarters of our oil consumption, so it is important that we get the indigenous production right. We were hopeful that the cess levy would get significantly altered in this budget. We noted that it did get altered to ad valorem but the percentage of ad valorem is actually a lot higher than we were expecting. But we accept this as a first step and we hope that not just Cairn but other producers as well will continue to have dialogues with the ministry and the government for a continued improvement in investment climate.
ET Now: So how much pressure are you witnessing on your realisations now that the cess also has not been as per estimates and crude prices continue to fall?
Mayank Ashar: The energy industry is facing a perfect storm. It does not matter whether you are an OPEC country or a shale oil producer in United States or oil and gas producer anywhere else in the world. We are facing very significant pressure of the like we have not seen in many decades. As far as Cairn is concerned, we are proud of our Rajasthan fields. We have some of the lowest cost oil in the world but despite that what we find is that at these levels of prices with the current burden that we have, our proftabilities under significant stress and if you were to look at our earnings after depreciation, they are virtually negligible. So this results in us looking hard at shutting down some unprofitable production. So we were really counting on the cess burden to be significantly lower. It has not happened yet but we hope that we can continue to have dialogue with the government and find a way so that the burden on the industry is not so severe that it hurts investment.
ET Now: So what is the option available? ONGC expects some negotiations to continue with the government. You too will reach out?
Mayank Ashar: Yes, I think we acknowledge the government efforts here. They clearly recognise that it was an issue and we would suggest that their response is less than what it ought to be but we appreciate the first steps. So I am not surprised at all that ONGC is feeling the pain. We are feeling the pain and together the two of us pay a lot in cess. So that is not surprising. I do want to separate a burden from, for lack of better word, an allowance of sorts. So sometimes there are incentives given to industries to invest or to grow and then there are burdens. These burdens are fair because at the end of the day, the oil and gas is owned by the government, by the people and so it is appropriate that the industry pays a burden. But when that burden goes from fair to an extremely high load, at that point we go away from win-win to a win-lose and we would suggest that in any industry not just oil and gas when the burdens are too high, where the government take is too high, it has collateral impact.