Barely a few months after the news of allowing RIL to increase the price by 3.5 times the current level on the supplies from its KG fields, the spectre of a steep hike has come to haunt users again. A committee under C Rangarajan, mandated to suggest the design of future contracts for exploration and production of oil and gas, has also recommended a basis/formula to price domestically produced gas. It has suggested price to be benchmarked to four series of international prices, viz Henry Hub (HH) in the US, National Balancing Point (NBC) in the UK, netback prices of sources of LNG supply for Japan, and netback price of Indian imports of LNG at well head of exporting countries....
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Articles
Crippling effects of oil subsidies
A lesser known aspect of the much talked about oil subsidies is the unprecedented ‘liquidity crunch’ that oil PSUs viz., IOC, HPCL and BPCL, face perennially. Subsidies are administered through these undertakings. Under instructions from the Government, these PSUs sell kerosene, LPG and diesel at low prices (prior to June 2010, price of petrol was also regulated). How is the excess of cost over selling price covered? Oil and gas PSUs contribute 40 per cent of differential amount by way of discount on crude supplies. The Government is supposed to reimburse 60 per cent as subsidy. However, it rarely meets its commitment in full! RISING UNDER-RECOVERIES Thus, during the first nine months of 2012-13 fiscal (April-December 2012), these PSUs had...
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The urea investment policy quagmire
The urea investment policy (UIP) recently approved by the Cabinet based on EGoM recommendations assures investors in a ‘Greenfield’ project prices linked to the import-parity price, or IMPP, with a range of $305-335 per tonne corresponding to gas price $6.50 per mmBtu. So, for each $1 increase in gas price beyond $6.50 per mmBtu, compensation to the manufacturer increases by $20 per tonne. Thus, for a gas price of $14 per mmBtu, the manufacturer would get $485 per tonne on the higher end of the range. Based on such tempting numbers, firms have reportedly drawn up plans for setting up urea capacity totalling around 20 million tonnes 12 million tonnes more than the current deficit of eight million tonnes. If...
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Missing links in the fertiliser subsidy scheme
In the Budget for 2012-13, the finance minister had announced tracking the movement of fertilisers from retailer to farmers and linking part of subsidy payment to manufacturers to the sale of fertilisers to farmers by retailers. Under the extant dispensation, 85-90% of the subsidy amount (fixed amount on DAP and NP/NPK fertilisers and excess of cost over controlled MRP for urea) is paid to manufacturer on ‘receipt of material in district’. From November 2012, producers are to get subsidy payments only on confirmation of ‘receipt of fertiliser by the retailer’. Actual payments are, however, stuck as the department of fertilisers (DoF) has no money, having exhausted allocated funds. In the mid-year economic analysis of 2012-13, the finance ministry came out...
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Cash transfers: Food for thought
The ‘Direct Cash Transfer’ (DCT) of funds into bank accounts of beneficiaries began this month in 20 districts. It will cover the entire country by April 2014. But food and fertiliser have been kept out of its ambit. There are complex issues to be sorted out, the Finance Minister has said, without really giving an indication as to when the rollout in these critical areas will actually take place. Payments are estimated to be Rs 3,20,000 crore annually. The scheme is being bandied as a revolutionary reform that will bring transparency, enhance reach, empower poor, improve fiscal deficit and reduce corruption. The implementation if done in a manner as contemplated — correct identification of beneficiaries, inclusion of all deserving persons,...
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No case for hike in KG gas price
Arvind Kejriwal has expressed serious concern over the price hike in gas supplies from RIL’s KG fields. He has also alluded to a bonanza of Rs 45,000 crore that would accrue to Mukesh Ambani over the next two years. Whether or not the Government acquiesces to RIL’s demand for hike in price from the existing $4.2 per mbtu (million British thermal unit) to around $14 per mbtu is a matter on which the EGoM has to take a call. However, what it will have in store for the economy is an issue that we need to seriously consider. India imports 80 per cent of its crude requirements. Apart from being a cleaner fuel, gas offers enormous scope for reducing import...
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End the oil, fertiliser subsidy raj
A likely trade deficit of around $200 billion during the current year ($110 billion during April-October 2012) — exceeding last year’s all-time record of $185 billion — is ringing alarm bells. When viewed against the backdrop of deceleration in industrial output — in particular, the capital goods sector — this shows that excessive imports are being resorted to for supporting consumption, instead of growth. Crude petroleum, fertilisers, edible oils, pulses, account for a major share of our import bill. Their imports remain high, irrespective of the prevailing international prices. Thus, even when prices shoot up, imports do not go down. We import 80 per cent of our crude requirement. In phosphate, this is 80-85 per cent; potash 100 per cent...
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Let’s not delay direct cash transfer of subsidy
A National Committee (NC) under the Prime Minister has been constituted on ‘direct cash transfer’ of subsidy. Will this prove to be more potent than the present dispensation? What is wrong with the latter? The present system does not differentiate between rich and poor; breeds inefficiencies and distortions, undermines competition and gives an easy platform to all and sundry — producers, suppliers, traders — to make unjust gains. SUBSIDY REGIME Urea MRP is controlled at a low level unrelated to cost of supply, which is much higher. A differential amount is reimbursed to the producer as subsidy. It varies depending on source of supply, whether it is import or indigenous. Decontrolled P&K fertilisers, too, are subsidised. Unlike urea, all producers/suppliers...
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Fertilisers policies pull in opposite directions
The Union Budget for 2012-13 generated huge expectation about the Union Government’s keenness to reduce ballooning subsidies that have been a major source of its fiscal targets going awry. The then Finance Minister promised to contain the total subsidy bill within 2 per cent of the GDP in the current fiscal and at 1.75 per cent in the next three fiscals. However, there is little to show for any credible action plan in this regard. The recent measures to restrain subsidies in diesel and LPG are too little and too late. As far as fertilisers go, the powers-that-be have not even demonstrated a basic intention to walk the talk. The Cabinet Committee on Economic Affairs has recently approved a meagre...
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