by Santanu SaikiaIn keeping with the spirit of liberalisation and a mindset which matches a free-market economy, the petroleum ministry increasingly reflects a certain degree of transparency about what was once an oppressively opaque decision-making process.
The winds of change were first experienced under former petroleum ministry Ram Naik -- with his distinct albeit ebullient style of functioning -- and have built up into a full-fledged blustery squall under the present petroleum minister Mani Shankar Aiyar. Of late, the befuddling business of policy making, however controversial, has been conducted in an unusually unambiguous manner, debated not just within the closed-door rooms of Shastri Bhawan but also at a variety of forums outside. The deliberations into OVL's forays abroad have been as hotly discussed by the various players in the petroleum industry as the changing status of
The winds of change were first experienced under former petroleum ministry Ram Naik -- with his distinct albeit ebullient style of functioning -- and have built up into a full-fledged blustery squall under the present petroleum minister Mani Shankar Aiyar. Of late, the befuddling business of policy making, however controversial, has been conducted in an unusually unambiguous manner, debated not just within the closed-door rooms of Shastri Bhawan but also at a variety of forums outside. The deliberations into OVL's forays abroad have been as hotly discussed by the various players in the petroleum industry as the changing status of
ONGC's off-again-on-again partnership with Statoil. Indeed, the decision to scuttle the exploration major's diversifications into power and petrochemical projects has generated as much heat as the provisions of the Petroleum Regulatory Board Bill or the Presidential Directive to GAIL to re-tender the Dahej-Uran pipeline project. Attempts to pare down the under-recoveries on LPG and kerosene and the haggling over the price of LNG to be imported from Iran have lit up many a spirited argument.
This refreshing glasnost within the ministry is inspiring, but if there is one area which continues to be taboo, steeped in near-secrecy, it is the machinations behind the massive purchases of crude oil by India's public sector oil companies. What is available in the public domain is the gargantuan scale of the exercise -- the figures are mind-boggling: In October itself, public sector companies had imported Rs 7790 crore worth of crude oil. The provisional import figure for the whole year has been pegged at a conservative Rs 55,000 crore, essentially because crude prices have been lower in the initial months of the current financial year and are expected to reach a more predictable average as the financial year progresses. It isn't just international prices which are up, import volumes have also gone up, delivering what seems to be a double-whammy. But what's truly intriguing is that no disaggregated figures have been publicly available on the break-up of crude imports, their source and the prices at which they have been contracted. While it is reasonable to assume that spot purchases conducted on a limited tender basis are obviously transparent with the winner being the lowest bidder, there is a legitimate case to be made out for greater transparency on the basis on which term contracts are entered into by public sector companies.
The standard policy is to enter into term contracts at the Official Selling Price (OSP) with the National Oil Company (NOC) of the country which has surplus crude to sell. Ostensibly, this mode of transaction is completely above board -- as one set of NOCs (the public sector companies) buy crude from another set of NOCs. This N2N (NOC-to-NOC) transaction apparently does not leave any room for "maneuverability" -- however loosely one might use the term. Be that as it may, there are undoubtedly problems with this arrangement as NOCs of some countries -- such as Nigeria, for instance -- cannot meet the demand for a particular variety of crude. Then again, NOCs of countries like Angola (Sonangol) and Norway (Statoil) do not always sell at the OSP. In May 2001, the crude purchase policy was liberalised to allow for purchases from international companies which hold equity oil, and a provision was also made for transactions to take place at prices other than the prevailing OSP of a particular country. These purchases are made on the basis of a list of companies approved by an Empowered Standing Committee within the petroleum ministry, and ultimately vetted by the petroleum minister. But here again, there appear to be major issues which are far from resolved.
For example, IOC has not been able to purchase the "Masila" crude -- a highly desirable Non Lube Non Bituminous category -- from Yemen as the country's NOC does not enter into term contracts, and none of the equity oil companies listed by the petroleum ministry sell this variety of crude. Further complicating matters, public sector companies have shied away from term purchases at negotiated prices since the procedures haven't been adequately elaborated, leaving ample room for interpretation and even later-day vigilance probes. There are other grey areas as well which make the entire business slippery: what happens, for example, if only a portion of a particular grade of crude is bought at the OSP from an NOC, leaving the rest to be mopped up from an equity oil company at, perhaps, a higher rate? No doubt, buying at a higher price offers the possibility of opening up a Pandora's box of predicaments, unless adequate counter-checks are in place. There can be no denying that there is an urgent need for a thaw in ministerial supervision.
There is, for instance, no real need for the ministry to publish a list of companies with which term contracts could be entered into. For, in some cases, the equity producer is not necessarily the marketer of the crude. To avoid confusion, public sector buyers should be given the flexibility to enter into term contracts with all trading arms, marketing outfits, joint venture companies in which an equity oil company has more than 50% stake. Petroleum companies also resent directions from the ministry -- occasional, no doubt, but directions all the same -- to buy certain categories of crude. They have now, in fact, petitioned the government for greater autonomy to buy crude, based entirely on commercial considerations. The industry has argued that the Empowered Standing Committee should only provide the guidelines, leaving implementation to the companies concerned.
And why not? In the final analysis, greater autonomy to the companies would necessarily translate into greater transparency in the entire system -- from the decision-making process right up to the term contracts. At stake is a huge volume of transaction: Indian Oil Corporation (IOC) itself has finalised term contracts for 21.02 million tonnes (MT) of crude for 2004-05 and it plans to buy 34.84 MT by way of long term purchases in 2005-06. Omission does not necessarily have to be misspelt as commission -- and the only way to avoid a spell-check in the public mind is to hide nothing. Transparency, as the wise one once said, " We're all transparent against the face of the clock." Is time ticking out? Mani Shankar Aiyer can't afford to wait and watch!
This refreshing glasnost within the ministry is inspiring, but if there is one area which continues to be taboo, steeped in near-secrecy, it is the machinations behind the massive purchases of crude oil by India's public sector oil companies. What is available in the public domain is the gargantuan scale of the exercise -- the figures are mind-boggling: In October itself, public sector companies had imported Rs 7790 crore worth of crude oil. The provisional import figure for the whole year has been pegged at a conservative Rs 55,000 crore, essentially because crude prices have been lower in the initial months of the current financial year and are expected to reach a more predictable average as the financial year progresses. It isn't just international prices which are up, import volumes have also gone up, delivering what seems to be a double-whammy. But what's truly intriguing is that no disaggregated figures have been publicly available on the break-up of crude imports, their source and the prices at which they have been contracted. While it is reasonable to assume that spot purchases conducted on a limited tender basis are obviously transparent with the winner being the lowest bidder, there is a legitimate case to be made out for greater transparency on the basis on which term contracts are entered into by public sector companies.
The standard policy is to enter into term contracts at the Official Selling Price (OSP) with the National Oil Company (NOC) of the country which has surplus crude to sell. Ostensibly, this mode of transaction is completely above board -- as one set of NOCs (the public sector companies) buy crude from another set of NOCs. This N2N (NOC-to-NOC) transaction apparently does not leave any room for "maneuverability" -- however loosely one might use the term. Be that as it may, there are undoubtedly problems with this arrangement as NOCs of some countries -- such as Nigeria, for instance -- cannot meet the demand for a particular variety of crude. Then again, NOCs of countries like Angola (Sonangol) and Norway (Statoil) do not always sell at the OSP. In May 2001, the crude purchase policy was liberalised to allow for purchases from international companies which hold equity oil, and a provision was also made for transactions to take place at prices other than the prevailing OSP of a particular country. These purchases are made on the basis of a list of companies approved by an Empowered Standing Committee within the petroleum ministry, and ultimately vetted by the petroleum minister. But here again, there appear to be major issues which are far from resolved.
For example, IOC has not been able to purchase the "Masila" crude -- a highly desirable Non Lube Non Bituminous category -- from Yemen as the country's NOC does not enter into term contracts, and none of the equity oil companies listed by the petroleum ministry sell this variety of crude. Further complicating matters, public sector companies have shied away from term purchases at negotiated prices since the procedures haven't been adequately elaborated, leaving ample room for interpretation and even later-day vigilance probes. There are other grey areas as well which make the entire business slippery: what happens, for example, if only a portion of a particular grade of crude is bought at the OSP from an NOC, leaving the rest to be mopped up from an equity oil company at, perhaps, a higher rate? No doubt, buying at a higher price offers the possibility of opening up a Pandora's box of predicaments, unless adequate counter-checks are in place. There can be no denying that there is an urgent need for a thaw in ministerial supervision.
There is, for instance, no real need for the ministry to publish a list of companies with which term contracts could be entered into. For, in some cases, the equity producer is not necessarily the marketer of the crude. To avoid confusion, public sector buyers should be given the flexibility to enter into term contracts with all trading arms, marketing outfits, joint venture companies in which an equity oil company has more than 50% stake. Petroleum companies also resent directions from the ministry -- occasional, no doubt, but directions all the same -- to buy certain categories of crude. They have now, in fact, petitioned the government for greater autonomy to buy crude, based entirely on commercial considerations. The industry has argued that the Empowered Standing Committee should only provide the guidelines, leaving implementation to the companies concerned.
And why not? In the final analysis, greater autonomy to the companies would necessarily translate into greater transparency in the entire system -- from the decision-making process right up to the term contracts. At stake is a huge volume of transaction: Indian Oil Corporation (IOC) itself has finalised term contracts for 21.02 million tonnes (MT) of crude for 2004-05 and it plans to buy 34.84 MT by way of long term purchases in 2005-06. Omission does not necessarily have to be misspelt as commission -- and the only way to avoid a spell-check in the public mind is to hide nothing. Transparency, as the wise one once said, " We're all transparent against the face of the clock." Is time ticking out? Mani Shankar Aiyer can't afford to wait and watch!
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