Sixty-six dollars a barrel is a price we have never seen before for crude oil, and the near term projections are all negative on significant price falls. Oil import bills are expected to touch over Rs 1,50,000 crore this year, a serious tax the nation is paying to the oil producers, constricting the liquidity available for investment and development. During the current year, this would represent the most significant transfer payment overseas by the country, a clear impoverishment. The debate in the media is not about the consequences now and in the future for development, but primarily about who should pay this price.
There are three actors: the government, which could reduce the impact of the price increase by reduction of tariffs; oil companies, that are complaining that they cannot bear the burden and would slip into losses; and the consumer, whom everybody represents and nobody listens to, waiting with baited breath for the price hikes, wondering how severe they would be.
The complaint of the oil companies is that they have actually started making losses, of around Rs 3.50 per litre of petrol, Rs 100 per cylinder of LPG etc. They have ensured publicity for their poor first quarter performance, to garner sympathy for their plight, indirectly threatening dire balance sheet consequences to the nation. There is a groundswell of sympathy that they should be left alone, to charge whatever prices the market commands, and that the system of government managed prices should cease forthwith, and the customer, the ultimate mute in this economics game, must pay, and like it.
This is a specious argument, and I have sympathy with those who seek other solutions. First, it is important to look at prices of these products elsewhere in the world. In the US, Southeast Asia, Japan and in most other oil importing countries, the prices of petrol and diesel are far lower than ours ? there has been a calculation that our current retail prices represent crude prices of $82 dollars a barrel. This happens because there is price fixing by the monopolistic producer, and this happens at three stages. ONGC is allowed international prices for indigenous crude, produced at around $10 a barrel, and this adds 50 paise to the retail price. Tariff margins between crude and products are still too large, giving rise to huge refinery margins to the private and public sector producers, and easily another 50 paise could be shaved off here. Third, the entire price fixing mechanism is opaque, with add-ons for storage, transportation, losses and overheads over the transfer prices that have little to do with operational efficiencies. More than one committee has pointed out that there needs to be greater transparency and accountability in the market price determination. The consumer should well ask ? why is it necessary for the oil companies to make profits of over Rs 5,000 crore?
Finally, of course, the returns to the finance minister in terms of the customs and excise duties are already substantially greater than his budgeted figures, yet there is a great reluctance to reduce tariffs. He could, for example, easily roll back the 50 paise cess on diesel introduced for the road programme, for there has been very little award of works under the programme in the last six months, and the funds would not be utilised, in any case.
There is, of course, the danger that increases in prices at the consumer level will push up prices all round, slowing down growth and fuelling inflation. This has already started in a few of the Southeast Asian economies, and the last message that a coalition government, with the rural plank to support, needs is the spectre of inflation.
I am all with the Left. Until the issues above are looked at and dealt with transparently, there should be no price increases.
The writer is a former petroleum secretary
