First it was Saudi Arabia's Aramco and Royal Dutch Shell which backed out of the Bhatinda refinery project. Now it is Exxon Corp which has pulled out from the joint venture with HPCL. One of the reasons cited by Exxon is the unviability of the project in view of the Jamnagar refineries and the central Indian pipeline project. The fate of the other foreign joint-venture refinery at Bina, between Oman Oil and BPCL, is not yet known, with the matter still awaiting environmental clearance. In fact, Oman Oil has threatened to pull out from the venture because of the delay.

Failure of foreign joint ventures have been primarily due to governmental delays and flawed policies. With foreign firms not being allowed to market their products, interest was minimal in the first place. This was worsened by delays, which, some say, was more than regular. Despite not being allowed to market their products under a controlled regime, overseas players showed interest in joint ventures, since they were not allowed to set up fully-owned subsidiaries, in the hope that they could tap the market after deregulation, that is, after 2002. However, this incentive too has fallen flat as the Government has cleared Petronet's central pipeline project. Pipelines being natural monopolies, permission to market their products is no longer an incentive as these refineries will be uncompetitive as their cost of transportation will be high. These pipelines will be originating from Jamnagar, which will soon be the highest oil-producing centre in the country, and will be connecting all oil-deficit states.

With the commissioning of the two huge refineries in Jamnagar, the country will be oil-surplus. This will put a big question mark on the feasibility of all new greenfield projects being planned in the country as well as on the expansion of existing state-run oil firms. In short, domestic companies have managed to keep foreign competition away in the oil sector.

Coal

Floor price seems to be the order of the day. First, it was imposed on coke, one of the important raw materials for manufacturing steel, second on steel itself. Now miners are demanding that such a protection mechanism should be imposed on coal imports too.

In all the three cases there has been scant evidence of a surge in imports. A look at the figures provided by the CMIE would reveal that although coal offtake had eased, imports had declined by an even greater extent. However, miners have a different story to tell. According to them, the cement industry has stopped buying coal locally and steel producers, power generators have cut their production. Naturally, coal offtake slowed down in the fourth consecutive month. The problem is all the more appalling as Coal India Ltd (CIL) had tried to push up sales by announcing price cuts. The company had announced a 9 per cent price cut in December on all grades of coal after the announcement of a reduction in cess by the West Bengal government from 45 per cent to 25 per cent.

If the commerce ministry accepts the argument to impose a floor price on coal imports, it will result in a cascading cost rise for the industrial sector. A 10 per cent increase in costs would mean a similar rise in power cost, a minimum of 3 per cent rise in manufacturing of finished steel and similarly for cement plants. The cascading effect of rise in power cost is difficult to estimate, but since the incremental fuel-cost is passed on in form of higher tariffs, all consumers would be affected. In fact, the worst affected would be coke-oven plants that had lobbied for imposition of floor price on imports of Chinese coke just a few months ago.

Even otherwise, Coal India has only itself to blame for the poor offtake. The imposition of a floor price cannot raise its sales volumes. The reason is simple: requirement of coal by the industry, especially steel and cement, is of an ash content less than 17 per cent. On the other hand, the coal produced by Coal India has an ash content of 17.5 per cent to 21 per cent after washing. The company could have produced better coal had it planned more underground mining at greater depths. But in a gesture to give consumers whatever grade is available, the company went in for more open-cast mining. Open mining has shorter gestation, but the production is of an inferior grade. With the bulk of mines being of open-cast type the quality of coal produced suffers.

Today, international prices of coal have fallen, but that is due to a demand drop. South African and Australian miners have agreed to take wage cuts to reduce the cost of production. Incidentally, labour has the highest cost element in total cost of production. Can the Indian miners do that? At present, none of the washeries are operating at more than 70 per cent. Without any new washery installation, the output of washed coal can rise by 30 per cent or 7.5 million, which will reduce the freight cost by more than 10 per cent and give the company far more value addition in terms of revenues.

(with contributions from Shishir Asthana & Manish Saxena)