For several decades, central public sector undertakings [CPSUs] in the downstream oil sector viz., Indian Oil Corporation Limited [IOCL], Bharat Petroleum Corporation Limited [BPCL] and Hindustan Petroleum Corporation Limited [HPCL] have enjoyed a virtual monopoly position in refining/production and marketing of petroleum products. Although, in the last around 2 decades, private sector players such as Reliance Industries Limited [RIL] and Essar Oil limited [EOL] have also emerged on the scene setting up refining capacity on a large-scale, the position of oil PSUs in the domestic market remains unchallenged. This was primarily because of a discriminatory policy and regulatory environment that not only erected entry barriers in marketing but also rendered their operations unviable. In this backdrop, while one would have...
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Category: Oil & Gas
ONGC/OIL ‘freed’ from subsidy sharing
Given his DNA, viz., “nation first”; “clarity of vision”; “decisiveness” and “firmness”, prime minister, Modi has the capacity to transform his ideas in to action in a fairly quick time frame. This is especially true of subject matters that are entirely within the executive domain. One such subject matter relates to Oil and Natural Gas Corporation [ONGC] – a central public sector undertaking which is the single largest contributor to India’s oil and gas production and country is heavily dependent on it for taking its energy security mission forward. Modi has taken a far reaching policy decision to unshackle it from controls. Before, we dwell on the policy decision and what it has in store for the future of ONGC...
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‘Premium’ pricing of gas – is government falling in to a trap?
In August, 2014, Modi – government had set up an inter-ministerial committee of secretaries (CoS) under chairmanship of secretary, ministry of petroleum and natural gas (MPNG) to recommend a new structure of pricing domestic gas. The committee submitted its report on September 16, 2014 Guidelines for pricing domestic gas Based on its recommendations, on October 18, 2014, cabinet committee on economic affairs (CCEA) approved guidelines for pricing of all domestic gas [except supplies from fields awarded prior to NELP (new exploration licensing policy) where PSC (production sharing contract) did not provide for approval of price by government] based on ‘modified’ Rangarajan formula. Nicknamed after Dr C Rangarajan, chairman, economic advisory council to prime minister [he headed a committee on gas...
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Gas supply ‘conundrum’ – haunting India
In its Performance Audit Report on Supply and Infrastructure Development for Natural Gas (tabled in the Parliament on May 5, 2015), the comptroller and auditor general (CAG) has pulled up the government for failing to create infrastructure for domestic gas production and supply. CAG said that India lost subsidy savings of Rs 11,800 crores between 2010 and 2013 on this account. Infrastructure for domestic gas – CAG revelations It noted that non-availability of long-term gas supply and inadequate pipeline connectivity were the main constraints in increasing of urea production capacity. During 2011-12 and 2012-13, urea production was only 44.6 million tons against the requirement of 60.4 million tons. The shortfall of 15.8 million tons was imported at much higher cost...
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OIL ECONOMICS AND POLITICS
The BJP must now stop the practice of asking oil companies to give discounts to downstream PSUs Presenting his first maiden Budget in July 2014, Union Minister for Finance Arun Jaitley had accepted the daunting challenge to retain the fiscal deficit target for 2014-15 at 4.1 per cent. On February 28, while presenting the Budget for 2015-16, he reported that the target had been achieved. However, this achievement was at the cost of massive reduction in plan expenditure from the Budget estimate of Rs5,75,000 crore to about Rs4,68,000 crore as per revised estimate, a fall of Rs1,07,000 crore. For this, one cannot blame the present Government as ,when it came to power, it had inherited a weak economy which resulted in...
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ONGC – no more ‘milching’ please
Presenting his first maiden budget in July 2014, finance minister Arun Jaitely had accepted a daunting challenge of 4.1% fiscal deficit for 2014-15. On February 28, 2015, while presenting budget for 2015-16, Jaitely reported that the target had been achieved. The achievement was at the cost of massive reduction in plan expenditure from budget estimate (BE) of Rs 575,000 crore to about Rs 468,000 crore as per revised estimate (RE), a fall of Rs 107,000 crore. For this, one can’t fault present government as it inherited a weak economy which resulted in equally massive drop in tax receipts from about Rs13,64,000 crore (BE) to Rs 1251,000 crores (RE), a fall of Rs 113,000 crores. During the last 9 months of...
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FUNCTIONAL SYSTEMS DON’T NEED FIXING
Capping the price of domestic gas will be a retrograde step. It will undermine the 2014 formula-based pricing system and also give bureaucrats unnecessary powers The Union Government is contemplating putting a cap on the price of domestic gas. The Ministry of Petroleum and Natural Gas has prepared a draft note for consideration by the Cabinet Committee on Economic Affairs. Based on the recommendations of the Committee of Secretaries, the National Democratic Alliance regime in October 2014 approved of the new pricing guidelines for domestic gas. According to the guidelines, the price of gas will be determined based on the ‘modified’ Rangarajan formula that came into effect from November 1, 2014. The R-formula, used the average prices of global benchmarks...
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Lift the veil on subsidies
In his maiden budget for 2014-15 presented on July 10, 2014, finance minister, Arun Jaitely had announced setting up of an expenditure management commission (EMC) to recommend a road- map up for rationalizing and phasing out major subsidies. As a follow up, on September 4, the government constituted the EMC under chairmanship of Dr Bimal Jalan. The commission’s mandate puts under scanner government’s spending on all its programmes and schemes, procurement from defence to office items besides the methodology for counting receipts and expenditure. It is expected to recommend measures for utilization of allocated funds in the most cost effective manner. While addressing the just concluded ET Global Business Summit, Jaitely informed that the recommendations of the commission made in...
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Ceiling on gas price – a retrograde move
The government is contemplating to put a cap on the price of domestic gas. In this regard, ministry of petroleum and natural gas (MPNG) has drafted a note for consideration by cabinet committee on economic affairs (CCEA).This is a bad idea! In October 2014, based on the recommendations of committee of secretaries (CoS), NDA – government had introduced new pricing guidelines for domestic gas whereby its price would be determined based on ‘modified’ Rangarajan (R)-formula effective from November 1, 2014. The R-formula used average prices of global benchmark at Henry Hub (USA) and NBP (national balancing point), UK on one hand and producers net-back from supplies of liquefied natural gas (LNG) to India and Japan in preceding 6 months on...
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Gas pricing – Modi’s ‘modified’ R-formula
For quite some time, media has been agog with strident criticism about Modi government’s alleged inability to come up with big bang reforms. One area where it has been targeted the most for alleged delay pertains to pricing of gas. To put things in perspective, a few words on the background are in order. In 2007, based on recommendation of a group of ministers (GoM), then UPA government had approved a price of US$ 4.2 per million British thermal unit (mBtu) – on net calorific value (NCV) basis – for gas supplies from Reliance Industries Limited (RIL’s) KG-D6 fields [awarded in first NELP (new exploration and licensing policy) round 1999] chargeable for 5 years from commencement of production. This price was...
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