Category: Under-recoveries of OMCs

ONGC/OIL ‘unshackled’ – government must stay on course

For Oil and Natural Gas Corporation [ONGC] and Oil India Ltd [OIL] – central public sector undertakings [PSUs] in the business of oil and gas exploration and production, the year 2016-17 brings unprecedented cheer. The ministry of petroleum and natural gas [MPNG] has proposed that the government won’t be asking them to share the burden of subsidies on LPG and kerosene. To put things in perspective, a bit of background is in order. During 2004-2014, under directions from then government, ONGC and OIL offered discount on supply of crude to downstream oil PSUs viz., Indian Oil Corporation Limited [IOCL], Hindustan Petroleum Corporation [HPCL] and Bharat Petroleum Corporation [BPCL] to cover a portion of under-recoveries that latter incurred on sale of...
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Low commodity prices – good omen for stronger India

Only about 18 months ago, there was an all round mood of despondency due to skyrocketing international price of crude oil and gas for which India depends heavily on imports for its energy requirements. This was the single most important factor responsible for high current account deficit [CAD], pressure on the Rupee and the inflationary effect on the economy. The scenario on the subsidy front was equally grim. Oil and gas being key ingredients in production of fertilizers and petroleum products [POL], this also led to ballooning subsidy in the face of control on retail prices of latter at low level. During 2013-14, fertilizers and POL subsidies alone were around Rs 240,000 crores putting huge stress on the budget and...
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Fuel price – have consumers been taken for a ride?

The international price of crude oil has plummeted from a high of US$ 110 per barrel in June 2014 to a low of US$ 36 per barrel [lowest in 11 years] at present. In the back drop of the decision of OPEC [it accounts for 40% of world supplies and 85% of India’s import] not to take recourse to any output cut [a normal tactics employed by it in the past to prevent price from sliding], substantial pumping of oil by Iran, high production of shale gas in US and continuing slowdown in global demand, the price will continue to slide. Goldman Sachs predicts this to touch US$ 20 per barrel. Considering India’s heavy dependence on import of crude for...
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Direct LPG subsidy transfer – a ‘torch-bearer’

The Guinness Book of World Records has recognized India’s direct LPG subsidy transfer as the world’s largest direct benefit transfer [DBT] program. The program nick-named PAHAL [Pratyaksha Hastaantarit Laabh] has within its ambit 146.2 million households [as on December 3, 2015]. While, the recognition is for it gigantic coverage and unprecedented success in reaching out the benefit through the length and breadth of the country, it is symptomatic of metaphorical changes that could come about in the way subsidies are administered and the big push that it could give to Modi’s reform agenda. For decades, Union government gave subsidy on LPG, diesel, kerosene etc by directing oil PSUs viz., Indian Oil Corporation Limited [IOCL], Bharat Petroleum Corporation Limited [BPCL] and...
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ONGC harping on higher gas/oil price – untenable

The declining international prices of crude oil and gas [since last year] has  brought huge relief to critical sectors like fertilizers, power, transport, households etc besides helping the government in reining in subsidies [fertilizers] in turn, helping fiscal consolidation and reducing losses of state electricity boards [SEBs]. However, international rating agencies [Moody & Standards and Poor] as well as domestic rating agencies viz., CRISIL feel that this will have deleterious impact on Oil and Natural Gas Corporation [ONGC] and Oil India Limited [OIL] – both central public sector undertakings [PSUs] which supply indigenous crude to oil refineries. This would be an overly simplistic way of looking at an otherwise complex situation on the ground. They argue that price paid to...
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Oil PSUs – ‘haemorrhage’ stops

For several decades, central public sector undertakings [CPSUs] in the downstream oil sector viz., Indian Oil Corporation Limited [IOCL], Bharat Petroleum Corporation Limited [BPCL] and Hindustan Petroleum Corporation Limited [HPCL] have enjoyed a virtual monopoly position in refining/production and marketing of petroleum products. Although, in the last around 2 decades, private sector players such as Reliance Industries Limited [RIL] and Essar Oil limited [EOL] have also emerged on the scene setting up refining capacity on a large-scale, the position of oil PSUs in the domestic market remains unchallenged. This was primarily because of a discriminatory policy and regulatory environment that not only erected entry barriers in marketing but also rendered their operations unviable. In this backdrop, while one would have...
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ONGC/OIL ‘freed’ from subsidy sharing

Given his DNA, viz., “nation first”; “clarity of vision”; “decisiveness” and “firmness”, prime minister, Modi has the capacity to transform his ideas in to action in a fairly quick time frame. This is especially true of subject matters that are entirely within the executive domain. One such subject matter relates to Oil and Natural Gas Corporation [ONGC] – a central public sector undertaking which is the single largest contributor to India’s oil and gas production and country is heavily dependent on it for taking its energy security mission forward. Modi has taken a far reaching policy decision to unshackle it from controls. Before, we dwell on the policy decision and what it has in store for the future of ONGC...
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