People's Democracy

PETROLEUM PRICING POLICY

Who Are The Real Beneficiaries?

Dipankar Mukherjee

THE cat is coming out of the bag. Reports indicate the government is considering revision of even gas price of Reliance Industries Limited (RIL) as and when the same is available from its KG Basin. Reason? The gas price fixed by the government under pressure from RIL in September 2007 --- at 4.20 dollars per unit (million British thermal unit) --- was based on global crude price of 60 dollars per barrel. So, as the international crude price has gone up, this gas price has also to be increased. That is the import parity norm of fixing price even when oil or gas is extracted from your own natural resource! Against this, the public sector gas producer ONGC is supplying gas at a price of 2.2 dollar/unit as per the Administrative Pricing Mechanism (APM) to industries like power and fertiliser, which are vital for controlling inflation in the country. In the APM regime, pricing is transparent with reasonable profit clearly defined. Within APM, the prime minister need not address the nation to endorse a �scare mongering� figure of a loss of Rs 2,45,000 crore, in the name of oil marketing companies (OMCs) to justify imposition of global cost of petroleum products on India as if India has to import all its requirement of petroleum products at international price. On the contrary, as per the annual report for the year 2007-08 of the Ministry of Petroleum & Natural Gas proudly and rightly proclaims that the domestic refining capacity as on 01.04.2007 was 148.97 million metric tonnes per annum and availability of petroleum products was more than the domestic demand on overall basis except for LPG.

WHY THIS JUGGLERY

OF FIGURES?

After the dismantling of APM in 2002 during NDA rule, four essential petroleum products, viz kerosene, diesel, petrol and LPG, were still kept under the government's pricing regime. But there was continuous pressure from free marketwallas within the government and outside the government specially the corporate and the captive media to put these products also under the �import parity� regime so that the private refiners like Reliance and Essar are free to market their products at international price in domestic retail outlets, irrespective of the domestic production cost in the refineries. Public sector OMCs were coming in the way to have their access to retail market because of the administrative pricing. Accordingly, the NDA government decided to privatise two of three OMCs, viz HPCL and BPCL, as a first step in this direction. This was strongly opposed by the trade unions and the Left parties. Ultimately, the Supreme Court had to intervene and it stopped the privatisation without parliament's assent as they were nationalised through a parliamentary act. After the UPA government came to power with Left support, it was clear to all these neo-liberals that privatisation was not possible because of opposition from the Left. Hence, the tear-jerking game for OMCs was started with the coinage of new financial term of �under recoveries.� Those, who were till then egging Shourie & Co. to privatise the OMCs, overnight became the cheerleaders for OMCs to recover their so-called �under recoveries,� a term till now unknown in profit and loss account of petroleum companies. Ultimately, they have forced the prime minister to endorse such a concocted and fictitious figure of Rs 2,45,000 crore as �losses� for public consumption and �under recoveries� for official record. But, wherefrom this figure has come? As per the petroleum ministry's statement, to recover the under recovery of Rs 2,45,305 crore, petrol has to be priced at Rs 71 per litre ie 256 dollars per barrel. Wherefrom this figure was discovered that for refining 1 barrel of crude oil, which is costing 130 dollars, another 126 (256--130) dollar would be required for refining the same in our own refineries and marketing the same at the retail? Alongside are given the data furnished by the petroleum ministry on the refining cost in OMCs. Is the prime minister aware of these date? If no, then who has misled him?

Obviously these figures are not being cooked up for the welfare of the OMCs. A couple of months back, M/s Reliance and Essar closed their retail outlets on the plea of un-remunerative prices of petrol and diesel. This was a ploy to pressurise the UPA government to increase the price. The government has yielded to the pressure and it will be no surprise if their retail outlets are reopened after reduction of taxes/duty by the central and state governments along with the present price rise of petrol and diesel. Their final game plan is obviously to bring these four products under import parity, without any government control whatsoever. Ultimately, the private, both domestic and foreign, oil companies would edge out the three OMCs because of their bigger size of refineries and market manipulative power. The figure of Rs 2,45,305 crore is being floated around only to achieve this objective.

IMPORT PARITY

RICING: BASIC ISSUE

The basic issue is whether we are going to integrate our fuel pricing policy with global cartelised pricing of crude and petroleum products in spite of having 25 to 30 percent crude production within the country and having more then 120 percent of production capacity of refined petroleum products within the country. Should we price our petroleum products like petrol, diesel etc as if we have no refinery in the country and assume that we are importing all these products at global price as has been done by the petroleum ministry and endorsed by the prime minister. This is not a question of economy management but a question of policy of globalisation. Today it is the question of import parity on petroleum products; tomorrow it will be for agricultural products and finally it will curtail our own decision making power to fix the prices of even essential commodities.

This is the ugly part of globalisation --- 77 millions of people, who do not earn more than 2 dollars a day, cannot have access to the globalised prices, dictated by the transnational and domestic corporates. Is the country prepared to sacrifice �self-reliance� and mortgage its sovereign power to fix the prices of domestic products? Let the Congress as well as the BJP reply. Is it domestic pricing or import parity? What is their choice?

		Crude Cost (%)	Refining Cost (%)
IOC	2003-04	84.35	4.23
		2002-03	85.59	4.22
		2001-02	94.02	5.52
	BPCL	2003-04	87.29	3.83
		2002-03	89.03	3.90
		2001-02	89.47	5.81
	HPCL	2003-04	87.51	3.81
		2002-03	91.93	3.99
		2001-02	92.56	4.67