The analysts expect the upcoming FY13 budget to be a non-event for the oil downstream sector (OMCs and refineries), with the government revealing the customary Petroleum Levy and dividend targets from state-owned PSO. “Though, the major theme of the budget would be the resolution of energy crisis, ensuing eradication of circular debt that has marred the cash-flow position of the downstream sector, particularly PSO,” said Nauman Khan of Topline Research. However, he said, we attach low probability of government following through its plan on account of political consideration. Despite recent 16% (Rs1.25-1.68/KWhrs) increase in electricity tariff by the gov’t there still exist a 20-25% gap between cost of generation and tariff that would force the gov’t to overshoot its subsidy target and circular debt to remain a factor in coming year. The government is likely to announce its PL target of Rs120-140bn in FY13, in line with last year target but higher than estimated collection of Rs70bn in FY12. Given political consideration to keep the domestic oil prices in check, we attach a downside risk to these estimates. Similarly, the gov’t would also reveal its dividend estimates from its state-owned OMCs, PSO. We estimate cash dividend of Rs12 per share from the company in FY13. On the taxation front, we also expect no big surprises with 7.5% deemed duty on HSD and concessionary 0.5% of turnover tax for downstream oil sector to continue in the coming year. The gov’t would reaffirm its commitment for the overcome the energy crisis by showing its intent to restructure energy chain and targeted subsidy through tariff rationalization. However, we believe the political compulsion ahead of the general election would keep the gov’t to follow through its plan of energy sector reform. Hence, despite 16% increase in the electricity tariff, gov’t is likely to overshoot its subsidy target and actual subsidy to stand in a tune of Rs200bn.