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Business News/ Politics / Policy/  India to seek concessions in oil contracts, says Pradhan
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India to seek concessions in oil contracts, says Pradhan

In an interview, the petroleum minister speaks about how to carry forward the momentum of reforms in the oil sector

PSUs have to meet the challenge of improving their gross refining margins to benefit from a diversified market, says the petroleum minister. Photo: Hindustan TimesPremium
PSUs have to meet the challenge of improving their gross refining margins to benefit from a diversified market, says the petroleum minister. Photo: Hindustan Times

New Delhi: In a move that may benefit consumers, India plans to take advantage of subdued crude oil prices to get concessions for long-term supply contracts with major oil exporting countries, petroleum minister Dharmendra Pradhan said in an interview. His remarks coincide with a drop in the price of Brent crude to the lowest level in four years. China has, meanwhile, stepped up efforts to secure crude oil cargoes in the spot market. In the interview, Pradhan spoke about how to carry forward the momentum of reforms in the oil sector, having deregulated diesel prices and arrived at a new formula for gas pricing. Edited excerpts:

You have decontrolled diesel prices at a time when crude oil prices are on a downswing. If the prices increase, is there a trigger price point wherein the government will intervene to protect consumers?

Our government wants to continue the momentum of reforms. It’s not that we are content and satisfied after taking two-three steps. This momentum has to be carried forward. When we decided to market-link the diesel prices, we decided upon it after giving it a lot of thought.

The primary question was whether we should pass on the benefits of this price fall to the consumers. We have passed on the benefits. If we don’t honestly fulfil the pro-investment pre-conditions to broad-base the market and to bring in investments, and if this honesty is not reflected in the market, it will be said that this is skewed. So we made it market-linked in the right way. This market will expand. Crude oil price is the major factor in determining the petroleum product prices.

Simultaneously, refinery margin is also an important factor of the price mechanism. Indian government-owned public sector refineries have been useful in meeting our primary requirements such as petrol, diesel, kerosene, aviation turbine fuel and liquified petroleum gas. Today, the world has the technology. Earlier the oil-producing countries were limited in number. There were limited options. The market has diversified now. To benefit from this, Indian PSUs (public sector undertakings; state owned companies) who have a large market base have this challenge of improving their gross refining margin (GRM).

Haven’t they been facing this problem for a long time?

They are working. I am hopeful. The technology has provided us with an answer. Moreover, this kind of a market-linked economy will help their financial health. If the private sector is able to do it then why shouldn’t the public sector be able to do so? Multi utility of the last molecule of the hydrocarbon is our policy.

Do you believe that inefficiencies in the system has resulted in their low GRMs?

Let me quote an inspiring line from my prime minister (Narendra Modi). I am a strong believer of my prime minister’s view point that the glass is full. So, I am an optimistic person, a positive person. This is the philosophy of my governance. This is my prime minister’s vision. I count all my PSUs as full of good people They have done a commendable job and they have to perform according to the need of the changing market. Till now, they have been a monopoly, which has its own limitations. They have to shed their monopolistic approach.

So, when will the government intervene if the oil price spikes up?

No one can predict oil prices. I took over the ministry at a time when inflation was a major challenge to the country, for which the country reposed its faith in Modiji to find out a solution. We were met by the Iraq crisis at that time. It was predicted that the oil prices will go up to $150 per barrel. The crude oil prices are within the manageable limits as per the requirements of the Indian market. I can’t also predict, but the geo-politics is changing. The old parameters of the demand-supply equations in the market are changing. There was a time when the sellers were in the commanding position. Now, buyers are at the point of bargaining. This is the market’s philosophy. We are having a pro-India advantage and the leverage...Under the prime minister’s willpower and leadership, by leveraging our economy’s full potential in the changing face of the geo-politics, we may attain a position wherein our market will be in a position to develop the capacity to absorb and also impact the international crude oil prices...Reform is not merely a slogan. It is not an issue to burden the people with and to be anti-poor.

How is India leveraging the current crude oil price situation?

For the existing term contracts, by not renegotiating the quantum or by adding to the quantum, terms can be renegotiated.

Are we doing it?

It is a matter of strategy. No economic entity will divulge its strategy. There is a lot of crude oil produced in the world, which has to be sold. Where will they find the market? Till now, we had a scarcity and were asking them for offtake...We will do it with all countries. Interestingly, the suppliers have a concern today about whether we would cut down on their supplies. Where can they sell? Who else has a market as big as this? No one can predict oil prices. We have an opportunity today. We will try for it (concessions).

You had earlier talked about being willing to explore the middle ground between two contentious options: the existing cost-recovery model and the alternative revenue-sharing model. Have you been able to find a way?

The department is actively working on all these models. We are in the process of consulting. We are talking to all the stakeholders and experts. We have three parameters that we have identified—the maximum scientific data of the oil blocks to be offered under the 10th Nelp (new exploration licensing policy) round, their technological issues and the administrative bottlenecks that need to be addressed before we come to the market.

The research and development (R&D) work in the hydrocarbon sector has not happened to the desired level. This is the main issue...While we make a 500,000 crore ( 5 trillion) five-year plan, we spend less than 1% in R&D. Then how can you expect to map your geology and the reserves?. We are in the process of building the data repository. I am rewriting and refocusing the fundamentals of this ministry.

What is happening on the directorate general of hydrocarbons (DGH) front?

We will have to make DGH a world standard agency. We will need scientific equipment, people for doing scientific assessments and who understand market economy and technology. I have asked the secretary (in the ministry of petroleum and natural gas) to make a working paper on DGH.

The wings of the ministry such as DGH, PCRA (petroleum conservation research association), PPAC (petroleum planning and analysis cell), OIDB (oil industry development board), OISD (oil industry safety directorate) (and) centre for high technology need to be made more dynamic, more progressive, updated and modern. There is a requirement of new law, new idea and synergy.

What is your vision for India’s neighbourhood?

When the Prime Minister undertook his first visit to Nepal he expressed willingness to accept the longstanding demand of the product pipeline. We have started work on the same. Our vision is to emulate Modiji’s vision of Saarc (South Asian Association for Regional Cooperation) to emerge as a big block and work together for energy security; as a market and as a workforce. The worforce of these Saarc countries work in the Gulf nations. India has more responsibility and scientifically, technology-wise, India can be the lead partner. We can create a Saarc grid in the region. We will have a pipeline connection in Nepal. We have an old dialogue with Pakistan for giving LNG (liquefied natural gas). Bangladesh can be linked with the North-East. We are already present in Sri Lanka in marketing through Lanka IOC. We are also present in Maldives. In the Saarc region, India can be the lead partner for the grid.

You are reviving direct benefit transfer for LPG consumers? How will this be different from the earlier scheme?

In the earlier scheme, Aaadhar was made compulsory before even it was spread across the country. This had caused a lot of resentment amongst the consumers. We have also made bank accounts an option. We have also kept a third option wherein people who don’t have bank accounts or Aadhaar, we will also keep them under it until they get an account. They won’t be debarred from the benefit. We will provide them LPG at the old price regime through the same way. According to our assessment such a situation will not arise.

With the Jan Dhan scheme which has a target of seven crore accounts, of which six crore accounts have been opened up, with this spread there wouldn’t be an LPG customer who wouldn’t have a bank account or Aadhaar. Even after that, the people who will be left out will not be debarred. We aim to cover everyone. There are 16 crore consumers.

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ABOUT THE AUTHOR
Utpal Bhaskar
"Utpal Bhaskar leads Mint's policy and economy coverage. He is part of Mint’s launch team, which he joined as a staff writer in 2006. Widely cited by authors and think-tanks, he has reported extensively on the intersection of India’s policy, polity and corporate space.
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Published: 11 Nov 2014, 11:50 PM IST
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