INDIA: Oil major Indian Oil Corp. fuels debate on dismantling APM fossil, wants free pricing

Public sector oil majors, who have for long followed the government diktat on retail pricing of petroleum products, appear to be waking up to market realities. Oil major Indian Oil Corp (IOC) has urged the government to allow autonomy in pricing of petroleum products.

“With the advent of globalisation, navratna PSUs are also expected to operate against international benchmarks on commercial terms and are expected to provide return on public investment,” Oil major Indian Oil Corp told the government. If the government does not provide control over retail pricing of their products, it would erode the resource base of the blue-chip companies, Oil major Indian Oil Corp said in the annual memorandum of understanding with the government.

Control over the market price of petroleum products would not only prevent erosion of the resource base, it may also assist in capital formation of the companies, it said. Oil companies need huge capital for investment in future projects, including upcoming oilfields.

The oil major has contended that as navratna companies do not get budgetary support, technically there is no problem in giving them control over pricing of their products. More so, the companies would become uncompetitive vis-à-vis foreign counterparts if they do not get a say in the pricing of petroleum products.

The NDA government had dismantled the administered price mechanism (APM) in a move to allow marketing and pricing freedom to the oil companies. However, the issue of market-controlled prices has been put on the back burner by the present government. Subsequently, PSU oil firms are not allowed to fix prices of sensitive petroleum products — petrol, diesel, PDS kerosene and domestic LPG — according to the market situation.

Artificial price control is also killing retailing activities of the private sector due to unfair competition. Reliance Industries has announced progressive closure of its fuel-vending outlets. Essar and Shell are also lying low. Surging crude oil prices in the global market have put PSU oil companies in a tight spot.

Crude price of the Indian basket has been hovering around $110 per barrel. Oil major Indian Oil Corp market leader in fuel retail, is losing over Rs 240 crore daily. The company’s total under-recovery crossed Rs 43,000 crore in 2007-08. With other PSUs, the figure crosses Rs 77,000 crore, a significant jump from Rs 71,000 crore estimated in February 2008.

Source: Indian Economic Times

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