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Who would know better than R.S. Butola, Chairman, Indian Oil Corporation, about the challenges of heading a public sector company.
In a career spanning almost three decades, out of which two decades are in the hydrocarbon industry, he is well versed with the compulsions faced by a public sector entity.
In the backdrop of the recent Government decision to allow the PSU oil marketing companies (OMCs) to raise diesel prices in small quantities until the loss on selling the fuel at controlled price is neutralised, he shares his views with Business Line . Excerpts:
The recent diesel price hike and the question of ‘small quantity’:
What we understand is that this is a small flexibility that has been given to public sector oil marketing companies (OMCs). I agree, it is difficult to define small quantity, but since we have effected 45 paise hike, excluding taxes, we believe future increases only will be in this range.
On the frequency of revision:
Normally, prices of diesel and petrol are reviewed every fortnight, although this has changed for petrol, as it is now a deregulated product. Recently, we decided to revise petrol prices as and when required.
As far as diesel is concerned, the review cycle to calculate the under-recovery would be done every fortnight.
Though the retail price revision for the fuel will be done once a month or more frequently, it will be in the current range only (45 paise a litre, excluding taxes). It will take us at least a year to reach a market price.
On diesel deregulation:
This is not deregulation. But, this move is important and should be welcomed. In practice, the Government still controls even petrol price:
Sometimes the stakeholders (Government) have a view. We ourselves keep the overall environment in mind. Yes, in petrol we have not been able to change prices as frequently, but we have persisted and brought it to market price.
This 45 paise increase in diesel is not very huge. I do not think it would be a difficult thing.
On bulk (Railways, State Transport Corp, Defence) sales:
Now that the decision is to sell to bulk customers (buying directly from the OMCs’ installations) at market rates, the Railways can no longer expect subsidised diesel. In a free market, all are open to competition. Other fuel suppliers (private players, such as Reliance) will also compete.
We are ready for competition. Competition is good for the consumer also.
On diesel dual pricing:
Dual pricing is not good in a large system like ours. However, it could be argued that this is not dual pricing, as bulk sale can be treated as a separate category.
It has its own pitfalls. Last year, the total bulk sale was 11.5 million tonne. Of this, about 4.5 million tonne was to the Railways and State Transport Corporations, and the balance to other industries and users, including defence.
We have heard that State Transport Corporations were tying up with retail outlets due to the price differential of almost Rs 10 a litre between diesel sold at depots and retail outlets.
We have no way to stop this. Since the difference is so huge now, it is always an incentive for them to buy from retail outlets. We have put up our pumps at state transport facilities for their convenience.
We have brought it to the notice of the Government to see if this can be stopped by way of law. Similar is the case with small industries, which consumes more than 3 million tonne.
On subsidy:
After the increase of 45 paise a litre (excluding taxes) effective January 17 on diesel, the fuel is currently sold at Rs 9.15/ litre below cost.
For the first six months of the current fiscal (2012-13), the total under recovery – loss suffered by OMCs for selling diesel, domestic LPG and PDS kerosene at controlled price – stood at Rs 85,600 crore.
Both the Government and the upstream companies (ONGC, Oil India and GAIL) compensated Rs 30,000 crore each. The unmet amount was Rs 25,400 crore.
Now, the total under-recovery for nine months is Rs 1,25,000 crore, up from Rs 85,600 crore in the first six months.
For the first three quarters, in diesel alone, the revenue loss has been Rs 74,000 crore, for LPG it is Rs 29,300 crore and the remaining is in kerosene. For the third quarter, the unmet amount is about Rs 40,000 crore, of this about Rs 25,000 crore has to come from the Government.
Will the Government compensate unmet gap on diesel?
We will still get the unmet subsidy on diesel. The gap of Rs 9 a litre will be reimbursed by the Government… We have sought compensation from them.
On being an integrated refining-cum-retailing entity:
There is no conflict between the two businesses. The two domains are clear. The two have separate balance sheets.
The refining company sells at trade parity at gate price to marketing companies. The retailing companies bear the subsidy burden.
On the constraints of being a PSU:
We are ready for competition but the only thing is we seek is complete freedom in operations. We can’t be competing with taboos bound around us.
Are OMCs a cartel?
No, there is no cartel. There is always a difference in pricing, but the gap will be small as all the companies are importing crude oil.
We do take the decision about pricing, but it is up to individual companies to decide when they want to implement it.
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