News Release Details
Variance in views
New Delhi 20-Jul-2007
Even after five years of the supposed dismantling of the Administered Price Mechanism (APM), India's state-run oil companies have to go to the petroleum ministry to plead for oil bonds to defray at least part of the growing gap between their input and output costs. With the cost of the Indian basket of crude oil touching $73.89 per barrel, the losses are now running close to Rs 180 crore per day. Free pricing has remained a mirage, with petrol selling at uneconomically low prices. Even if the West Asian hostilities are argued to have come in the way of a proper dismantling of the APM, it is strange that the government refuses to devolve decisions in this sector to the companies concerned. Are crude oil prices, for example, going to come down anytime in the foreseeable future? Will they ever descend? Views on this are varied, and it would be much better for the ministry to allow different oil companies to act independently on the basis of their own scenario mappings, and bear the consequences. This would optimize the management of an industry where even a little optimization could spell big savings. Oil bonds, however, are a stopgap. They are a sort of short-term IOU mechanism that assumes that we are witnessing a temporary oil spike. Companies that take this view and insist on keeping retail prices low for the sake of pricing stability should raise funds from the money market to fill the gaps. Those that do not should be allowed to decide on their own whether and by how long to postpone the inevitable an up-ping of retail prices. The government's micro-management of the sector only jumbles the story up. All manner of customs and excise juggles have been tried, and import parity pricing has been replaced by trade parity pricing, but none of it has helped resolve the problem. The two petrol and diesel price hikes (one in September 2005 and then in June 2006) were modest, and there was even a price cut at the end of last year. Those who thought that crude oil cannot go beyond the high 60s felt vindicated at that point. The relief didn't last long. India's oil subsidy bill is pushing Rs 73,500 crore now. It's time to reform this sector.
New Delhi 20-Jul-2007
Even after five years of the supposed dismantling of the Administered Price Mechanism (APM), India's state-run oil companies have to go to the petroleum ministry to plead for oil bonds to defray at least part of the growing gap between their input and output costs. With the cost of the Indian basket of crude oil touching $73.89 per barrel, the losses are now running close to Rs 180 crore per day. Free pricing has remained a mirage, with petrol selling at uneconomically low prices. Even if the West Asian hostilities are argued to have come in the way of a proper dismantling of the APM, it is strange that the government refuses to devolve decisions in this sector to the companies concerned. Are crude oil prices, for example, going to come down anytime in the foreseeable future? Will they ever descend? Views on this are varied, and it would be much better for the ministry to allow different oil companies to act independently on the basis of their own scenario mappings, and bear the consequences. This would optimize the management of an industry where even a little optimization could spell big savings. Oil bonds, however, are a stopgap. They are a sort of short-term IOU mechanism that assumes that we are witnessing a temporary oil spike. Companies that take this view and insist on keeping retail prices low for the sake of pricing stability should raise funds from the money market to fill the gaps. Those that do not should be allowed to decide on their own whether and by how long to postpone the inevitable an up-ping of retail prices. The government's micro-management of the sector only jumbles the story up. All manner of customs and excise juggles have been tried, and import parity pricing has been replaced by trade parity pricing, but none of it has helped resolve the problem. The two petrol and diesel price hikes (one in September 2005 and then in June 2006) were modest, and there was even a price cut at the end of last year. Those who thought that crude oil cannot go beyond the high 60s felt vindicated at that point. The relief didn't last long. India's oil subsidy bill is pushing Rs 73,500 crore now. It's time to reform this sector.