News reports suggest that the government is not averse to foreign airlines picking up an equity stake in Air India when the disinvestment process begins. This is in stark contrast to the swadeshi line being flouted by the earlier civil aviation minister CM Ibrahim.

One might recall the directive issued by him (obviously under the auspicies of the Centre) to domestic ATOs for divesting all foreign holdings. Following the directive, Jet Airways distanced itself from two of its stakeholders namely -- Gulf Air and Kuwait Airways.

Given this diktat and the consequent divestment by Jet, the consideration of Amitabh Kumar's idea to allow foreign airlines an equity stake in AI is blasphemous. Additionally, it is this biased treatment of private ATO's which leads one to beleive that for the Government, one person's meat is another's poison. All of which further exemplifies the mockery that was called the Open Skies Aviation Policy. But government bias aside, this line of thought is in sync withthe Disinvestment Commission's recomendation. Remember the recommendation pertaining to a 30 per cent foreign equity participation?

Allowing foreign airlines to hold an equity stake in AI will definitely be a step forward. The Government has perhaps realised the folly of carving out a market share for AI by merely restricting competion and that the best way to grow is to ally with global airlines. Although one can expect a knee-jerk reaction to foreign equity holding from swadeshi hardliners, the matter merits calm deliberation. After all, why can't AI also benefit from following the divestment models followed by other state-owned international carrier like Quantas?

Private Refineries

Reports indicate that the petroleum minister is unlikely to allow the pool account to bear the gain/loss arising from the marketing of private refinery products. Such a decision may have a negative impact on the bottomlines of marketing companies.

The way the agreement was initially structured would have resultedin the oil pool account paying for IOC's inability to market the products of private refineries in India. According to reports, the terms of the 10-year agreement signed by IOC and Reliance Petroleum (RPL) state that IOC would sell 50 per cent of RPL's produce. The rest of the production of controlled items would be sold equally by BPCL and HPCL. Further, the spokesperson for the Essar group has said the agreement signed by Essar Oil with IOC would be identical to the one signed by RPL with IOC.

Since the bulk of marketing of controlled products is to remain with the PSU refining-cum-marketing companies, the extra volumes of marketing income should have aided the bottomline of these firms. But the commissioning of private refineries may result in a surplus of several refined products in India. Since there is a take or pay clause attached to the agreement, in case marketing companies are unable to pick up the desired quantities they would have to pay the penalty of price difference between the internationaland the domestic prices. Since international prices are lower than domestic prices (partly due to tariff barriers ranging from 10 to 32 per cent and lower prices due to huge bulk orders), the domestic marketing companies may have to shell out the difference in price to private refining companies.

Apart from the penalty clause, industry observers point out that the private refining companies would build up terminals and marketing companies would have to pay out terminal charges for the use of the terminals. Such a clause does not exist in agreements between stand-alone refineries and marketing companies. As a result, marketing companies may take an additional hit if they are unable to sell the products.

Petronet/Sengupta Committee

One of the recommendations made by the Sengupta committee that has rocked the refinery sector is that all existing oil pipelines should be taken away from the public sector oil companies and handed over to an independent company like Petronet India. Undoubtedly, theoil-sector majors like IOC, HPCL and BPCL, who own pipelines, are unhappy with the recommendations.

News reports suggest that the replacement cost of the pipelines will be a staggering Rs 20,000 crore.

On the one hand, it does not matter who owns the pipeline as far as access is given to all the players at a fee. On the other, it is wasteful to spend such a huge amount on an existing pipeline. The same amount can be utilised to set up the much needed new pipeline network. The Government would do better by taking a commitment from the existing pipeline owners to allow its network to be accessed by all the refineries as is currently being done under the watchful eye of the Oil Co-ordination Committee (OCC).

If the move goes through, it will create unnecessary complications as the assets will have to be picked up be Petronet, which is promoted by the very same refineries whose assests are being transferred. In other words, the refineries will have to fund the acquisition of their own assets.

EMCEE(with contributions from Percy Dubash, Manish Saxena & Shishir Asthana)