Oil sector looks to free pricing of petrol, diesel
Our Bureau Mumbai, May 17 India Inc will be doubtless delighted with the election results at a time when the global recession shows no signs of abating and the need for a strong, stable government at the Centre becomes imperative. One segment which will keep its fingers crossed about the future is the oil sector and, in particular, the public sector companies. Thanks to a pricing policy that is still in favour of subsidies and just refuses to acknowledge the need for a free market, these jewels of India's crown, aptly christened navaratnas, have had a rough deal over the years. Last fiscal was possibly the most trying in recent times as global crude prices spun out of control and compensation from the government (for losses incurred on sale of subsidised fuels) took a little too long in coming. As a result, the three refiners - IndianOil, Hindustan Petroleum Corporation and Bharat Petroleum Corporation - are tipped to report their worst results in recent times (for 2008-09) while the same is true for their upstream counterpart, the Oil and Natural Gas Corporation. Delayed response Last year, the problem was aggravated by the fact that the Centre just did not seem to recognise the gravity of the situation and could not react quickly. "We knew that there were pressures (on the Government) from coalition partners to avoid increasing prices of petrol and diesel but while this debate was going on, the refiners were borrowing mindlessly just to stay afloat," an oil industry official said. The price hike finally happened but it really was a case of too little, too late. The companies have paid a huge price for the delay in terms of interest costs, inventory/forex losses, etc., running into thousands of crores of rupees. "The irony is that the major shareholder, the Government, did precious little to ensure that the companies stayed healthy," he added. The core of the problem lies in the administered pricing mechanism (APM) where refining and marketing companies such as IOC, HPCL and BPCL sell petrol, diesel, cooking gas and kerosene at a subsidy, record the losses in their books and then get these compensated in the form of oil bonds. These bonds then end up getting sold at a loss because of a low coupon rate as has been the case lately. Similarly, a cash-rich company like ONGC is compelled to sell its crude and products at a discount to the refiners as part of the subsidy formula. At a time when its global exploration and production counterparts are making pots of money, ONGC has its back to the wall. Price deregulation Way back in 1997, an expert committee on the hydrocarbons sector had recommended total price deregulation but successive governments just could not implement this. For one, it was not easy to get a consensus in a coalition structure; the other problem was that free pricing was not the easiest of options when world crude and product prices were on an upward spiral. Now, with a more cohesive government in place, the oil sector hopes that petrol and diesel prices will be deregulated in the coming months, especially when world price levels are falling. This could then be followed by transferring the subsidies on kerosene and cooking gas to the Union Budget instead of burdening the oil companies' account books. "The Government is our custodian but must also keep in mind that there are minority shareholders who are affected because of these pricing policies. They buy oil company shares as blue chip investments and would not like to see their values erode this way," sources said. http://www.thehindubusinessline.com/2009/05/18/stories/2009051851540300.htm --~--~---------~--~----~------------~-------~--~----~ You received this message because you are subscribed to the Google Groups ""GLOBAL SPECULATORS"" group. To post to this group, send email to [email protected] To unsubscribe from this group, send email to [email protected] For more options, visit this group at http://groups.google.com/group/globalspeculators?hl=en -~----------~----~----~----~------~----~------~--~---
