New Delhi: For S. Jaipal Reddy, who replaced Murli Deora as petroleum minister, the immediate task at the nation’s highest economic turnover ministry is clearly cut out-- avoiding fuel price hikes and deciding on the sector’s biggest acquisition.
Reddy, who moved from urban development to the petroleum ministry, got down to tackling the task straightaway with a brainstorming session with senior ministry officials on Thursday.
“This is not a new government...I am a new minister in the old government. I am morally and politically accountable for all the policies and decisions of my predecessor. They were collective decisions of the cabinet,” he said on Wednsday.
With rumours doing the rounds that Congress party brass were not happy with Deora and his junior Jitin Prasada over the last week’s Rs 2.50 per litre hike in petrol prices, Reddy said spiralling international oil prices “was a challenge”.
Oil public sector enterprises, who face Rs 73,600 crore of revenue loss this fiscal, are pressing for a hike in diesel and LPG prices, but Reddy says “a balance” will have to be struck between how much consumers can pay and the fiscal needs of oil companies.
“The task confronting the petroleum ministry and the country are common. We cannot allow oil companies to bleed. They cannot afford it. Nor can we allow huge hikes in diesel prices, as they have cascading effect (on inflation). The burden has to be shared by all,” he said.
Despite last week’s price hike - the seventh since June, oil firms lose Rs 1.22 a litre on petrol. Besides, they lose Rs 7 a litre on diesel, Rs 366.28 on LPG and Rs 19.60 a litre on kerosene.
The Congress heavyweight said decisions on such issues would be taken at the Cabinet-level.
He will also have to quickly decide on giving approval to billionaire Anil Agarwal-run Vedanta Resources’ the $9.6 billion acquisition of Cairn India.
With Deora gone, Reddy will have to study Vedanta’s buyout of 40 to 51% stake in Cairn India from Edinburgh-based Cairn Energy Plc.
Thereafter, London-listed firm’s Indian unit Sesa Goa will make an open offer for an additional 20% stake to minority shareholders of Cairn India. Both these transactions are to close by 15 April.
Sources said going by the February-end deadline set by petroleum secretary S Sundareshan, Vedanta could not have closed the deal by 15 April.
This is because the open offer, which can be made only after government consent to the deal, will have to remain open for subscription for a total of 60 days.
If the government decision on the deal was to come by February-end (and in March according to petrleum minister Murli Deora), the open offer could not have begun before first week of March and it would have closed in end-April or early May, missing the 15 April deadline, an official said.
The Prime Minister’s Office (PMO) had set month-end as the deadline for deciding on the issue which has been hanging since August last year.
Reddy takes over as petroleum minister at a time when almost all the public sector companies under the ministry are seeing a change at the top.
Acting chairman B.M. Bansal will retire from Indian Oil Corp., the nation’s largest oil firm, by month-end while R.K. Singh is barely few months old at the helms of BPCL.
The nation’s highest profit making firm Oil and Natural Gas Corp. (ONGC) too will be headless with current chairman and managing director R.S. Sharma superannuating at month-end.
Replacements for Bansal and Sharma are unlikely to be in place by 1 February, as their files are struck in red tape.
Also, Reddy will have a new deputy in R.P.N. Singh after Wednesday’s cabinet reshuffle also moved Prasada to ministry of road transport and highways.
Hours before his departure, Deora said he has demanded abolition of customs duty on crude oil and cut in excise duty on diesel to avoid more fuel price hikes that have become necessary because of spiralling global oil rates.
Now it will be Reddy’s task to convince finance minister Pranab Mukherjee to rollback the 5% customs duty imposed on crude oil in last Budget.
Also, the Re 1 per litre increase in excise duty on petrol and diesel (also done in Budget for 2010-11) needs to be reversed.
Mukherjee had on 26 February 2010, imposed 5% import duty on crude oil and hiked the same on petrol and diesel from 2.5% to 7.5%.
He also hiked excise duty on petrol and diesel by Re 1 a litre to Rs 14.35 and Rs 4.60 per litre, respectively.
The twin move had led to a Rs 2.71 a litre hike in petrol price and Rs 2.55 per litre increase in diesel rates then.
He will also have to convince Mukherjee to make up for at least 55% of the Rs 73,600 crore revenue loss expected on fuel sales this fiscal.