Nature abhors a vacuum but there are exceptions, especially in the world of commerce, where some enclaves flourish amid “incomplete” government policies. Consider the gas utilization policy that determines the status of consumers in the queue for purchasing domestically produced gas, which is scarce and sells at one-fourth of its import substitute. Since the Union government foots a good part of the fertilizer bills (as subsidies) and a similar case applies to electricity bills, paid for by state governments, the two sectors enjoy priority over others in using this scarce resource.
The principle is fine. But the application has been partial. The “gates” have been left ajar. As a result, sectors such as steel and private sector “merchant” power plants that sell their output in the open markets have slipped in. All this might have gone unnoticed, but for the fall in production of gas last year from the country’s largest field —Reliance Industries Ltd’s Krishna-Godavari D6 area.
That has led to the government imposing a pro rata cut in gas supplies. Even there, the first trim in July 2010 failed to take note of the usurious profits that some companies made by obtaining fuel/feedstock at a “controlled” cheap rate while selling their products in the open market.
It is the second trim, early this year, the surgery was more meaningful. The government opens the tap for “non-core” consumers only after power and fertilizer units’ needs have been satisfied. As a result, steel firms saw supplies dwindle by 80%.
This “correction” is now being followed up through a third trim. Last week, the petroleum ministry moved a proposal for the empowered group of ministers to terminate supplies to power plants that sell electricity on a merchant basis. If this happens, other plants face the axe.
On the fertilizer side, the ministry is now proposing to terminate supplies to non-urea producing companies such as Deepak Fertilisers. For cheap gas does not translate to lower subsidies as retail prices were freed nine months ago, in April 2010.
While the corrections are necessary, isn’t the government closing the gates after allowing certain private companies to profit by giving them cheap gas supply licences? How then is it different from the allocation of second-generation (2G) telecom spectrum where the scarce resource was air waves?
Should the government do more to tighten the gas utilization policy? Tell us at email@example.com