LK Gupta, MD & CEO, Essar OilThe oil and gas sector was once again marred by mounting under-recoveries with upstream public sector oil companies taking a hit of Rs 30,200 crore during April-September 2012 period, a 39 per cent rise in the burden compared with the same period last year. Similarly, the overall under-recoveries of the public sector oil marketing companies stood at Rs 85,600 crore for H1 FY 13, part of which have been distributed amongst upstream companies. The firm global energy prices and continued high import reliance coupled with the adverse foreign exchange rate environment (steep depreciation of the rupee vs US$) has resulted in the burgeoning of import bill for crude oil to Rs. 3,65,400 crore for H1 FY 13, about 18% higher compared with last year.Petroleum products, the country’s biggest export earner, fetched revenue of about $ 59 billion annually. Export of these products stood at 28.9 MT during April-September 2012, according to the petroleum ministry’s data wing, the Petroleum Products Planning and Analysis Cell (PPAC).On the positive side, the Indian Government is planning to incentivise energy firms to explore and produce natural gas domestically by extending them similar fiscal incentives which are currently available to only crude oil producers.Issues: Post the deregulation of petrol, the government, under pressure to bring down fiscal deficit, increased diesel prices in September 2012, and also decided to put a cap on subsidised LPG cylinders being used by retail customers. And the decision to further hike the diesel prices in 2013 has boosted sentiment for the sector, and in process could result in the re-rating in several oil and gas companies. Although, the move to hike prices will not immediately reflect in the balance-sheets of the oil companies, which are reeling under severe losses, it could, however, improve sentiment amongst the investors in the near-to-medium term.Uncontrollable factor that has hurt the sector has been the continuing rise in under-recoveries for upstream and downstream oil PSUs. Upstream public sector oil companies taking a hit of Rs 30,200 crore during April-September 2012 period, while the overall under-recoveries of the public sector oil marketing companies stood at Rs 85,600 crore for H1 FY 13, which have been distributed amongst upstream companies. This also leads to idling of huge retail assets of private sector oil marketing companies.Policy measures: If the government continues with reformist measures such as further increase in the prices of fuel products, the oil and gas sector could do well in 2013. Further, the opening up of FDI in retail and aviation should improve investment sentiment.However, any populist move by the government; for instance increase in the annual limit of subsidised LPG cylinders from six per household to around nine on account of the general election in 2014 will adversely impact the sector, especially PSU oil companies.