New Delhi: The Congress-led United Progressive Alliance (UPA) government is open to allowing private sector oil firms such as Reliance Industries Ltd (RIL), Essar Oil Ltd and Shell India to access government subsidy on domestic fuel sales, provided they pass on the benefits to consumers.
Such a move would effectively put private firms on a par with government-owned oil marketing companies (OMCs) such as Indian Oil Corp. Ltd that are compensated for selling petroleum products to consumers at below cost.
“If the consumer gets the benefit, the idea is very much welcome. There should be pro-people focus,” said a top petroleum and natural gas ministry functionary, who didn’t want to be identified. He added, however, that no immediate action was expected.
Finance minister Pranab Mukherjee, in his 6 July Budget speech, announced that the government would set up an expert group to advise it on “a viable and sustainable system of pricing petroleum products”. Crude-oil price volatility has hurt India, which imports about three-fourths of its oil requirements.
RIL, Essar and Shell have been lobbying for equal treatment with public sector OMCs including access to oil bonds issued by the government to underwrite the subsidy cost of selling petroleum products at a concessional price, as reported by Mint on 14 March 2008.
These companies have been demanding oil bonds on a par with IndianOil, Hindustan Petroleum Corp. Ltd and Bharat Petroleum Corp. Ltd because the government still continues to control prices of petrol, diesel, kerosene and cooking gas although the so-called administered pricing mechanism, which dictates fuel prices, was to be dismantled effective 1 April 2002.
The under-recovery, or revenue loss for government-owned OMCs on account of selling fuel below cost, was Rs1.03 trillion in 2008-09, which was offset by the government through a combination of oil bonds and upstream discounts by firms such as Oil India Ltd, Oil and Natural Gas Corp. Ltd and GAIL (India) Ltd.
The total under-recovery for government-owned OMCs will be around Rs56,000 crore for the current fiscal, provided crude oil prices remain at current levels.
Essar Oil and RIL have shut several retail outlets because they couldn’t match the prices at government OMCs’ pumps.
Currently, Shell operates 68 fuel stations and Essar 1,240. Reliance has reopened around 50 of 1,432 outlets it had earlier closed.
“The government has consistently forced the national oil companies to sell at grossly subsidised rates, often below cost of production, and compensated them with oil bonds. This has virtually forced private players out of the market,” said a Shell spokesperson in an emailed response.
With 35,068 retail outlets, public sector units operate almost 93% of total fuel retail outlets across the country.
“Theoretically speaking, they (private OMCs) have an issue,” said B.K. Chaturvedi, a member of the Planning Commission, India’s apex planning body, who described the idea of giving a subsidy to private sector oil firms as one “worth exploring”. “However, this has to be tempered,” he said. “Let them (private sector oil firms) also provide services in far-flung areas as the government-owned OMCs do.”
Questions emailed to a public relations agency that interacts with media on behalf of RIL remained unanswered at the time of filing this story.
An Essar spokesman said: “It (the new dispensation) will provide for a level playing field and avoid predatory pricing.”