The government has bagan to seriously study the efficiency of state-run oil companies and find ways to make these subsidy-guzzling firms more nimble-footed.
As a first step, the government has asked the largest oil marketing company?Indian Oil Corporation (IOC)?to change the way it reports vital operational details that have a bearing on the costs of finished products, said a person familiar with the development.
The corporate affairs ministry, which had a round of discussion with IOC last week, would urge 11 other state-run companies to follow the suit. The ministry spoke to IOC first as other state-controlled firms usually follow IOC?s format in their cost audit reports. ?We are doing what the government has asked us to,? said an IOC official, who declined to comment further on the subject.
Twelve government-owned firms in the oil sector, including giants such as GAIL, HPCL, IOC, BPCL and ONGC have to compulsorily report their sensitive cost-related information to the ministry?s cost audit branch every year, as per a January 2007 order issued at the behest of the petroleum ministry. It excluded private sector firms because they do not get government subsidy.
The motive behind a new format for compulsory cost audit reports is to elicit finer details in areas such as raw material and power consumption, research and development expenses, inventory, export obligation, royalty payments, fixed assets and depreciation in a way that throws more insights into the firm?s efficiency.
Subsequently, the ministry would recommend how to enhance the efficiency of state-run oil firms, which receive public funds to stay healthy and sell products at state-fixed prices irrespective of their cost.
The government wants cost audit reports to be less voluminous so that compliance cost is less and relevant facts are not buried in reams of data. The ministry has rules on how to maintain cost records for different industries but oil sector firms are being asked to change the format in the light of a recent expert committee report that suggested widening the scope of cost audit.
Another panel, chaired by former Planning Commission member Kirit S Parikh is now examining the financial health of state-run oil marketing companies. This panel would recommend how to compensate them for their selling petroleum products below their cost. Earlier, a panel chaired by former RBI governor C Rangarajan had told the government that across the board subsidies lead to inefficiency and strain the state?s financial health.
IBP, Balmer Lawrie & Company, Oil India, Chennai Petroleum Corporation, Bongaigaon Refinery & Petrochemicals, Mangalore Refinery & Petrochemicals and Numaligarh Refinery are the other firms that have to change their cost audit report format.