Oil pricing decision comes back to haunt govt

Written by Vikas Dhoot | Sanjay Jog | New Delhi\Mumbai | Updated: Jan 10 2009, 04:36am hrs
Whereas striking oil company executives are adamant that record losses to their companies from fuel subsidies cannot be a reason for giving poor pay hikes, truck operators are standing their ground demanding a cut in diesel prices. Though the government claimed on Thursday the situation is still manageable, and some states have invoked the Essential Services Maintenance Act to get truckers back on the road and oil executives back in the office, commodity prices could start moving up soon. If the strike continues for long, it would build pressure on us and there is very little that we can do (to keep price in check), Reliance Retail president & CEO (operations & strategy) Raghu Pillai told agencies.

The problems stem from the governments ill-considered volte-face on developing a fre e market regime for petro-products soon after it came to power in 2004. The then petroleum minister Manishanker Aiyar said the plan stood rolled back. As the government now faces the prospect of rising prices nullifying its inflation control plans, the roll back is proving very costly. If the government cuts prices on diesel now it would benefit the truck operators but would hurt the bottom lines of the oil companies even more.

Surprisingly surface transport minister TR Baalu hasnt uttered a word since the transporters stir began four days ago. Speaking about the impact of the strike, additional secretary in the petroleum ministry S Sunderasan said, Some shortages can be there but the situation is under control. He also said petrol pumps were running low on inventory in anticipation of a petrol and diesel price cut. Government has roped in senior management personnel, along with Territorial Army at airports, to refuel airplanes. President of the striking Oil Service Officers Association Amit Kumar surfaced on Thursday after two days of hiding. He held talks with company management on their demands for higher wages. But the talks failed as the union insisted that the government accept their demands, according to chairman & managing director of IOC, Sarthak Behuria.

We said we can do nothing on their demands (for large hike in pay) since a high-level ministerial committee headed by home minister P Chidambaram has already been formed and it will give report in 30 days. But they didnt budge, Behuria said.

The strike has impacted production at IOCs seven refineries which are producing only 40% of their normal output, with production being impacted at its key refineries at Panipat and Mathura. Similarly, at the second largest public sector oil marketing company, BPCL, though its Mumbai refinery is operating at 70% capacity, the Koyali refinery in Gujarat is producing only 25% of its normal output. The other public sector oil company, HPCL, is taking products from private sector oil refiner Essar to fill in the gaps. Essar, which is operating its 1,000 petrol stations 24x7, has committed to supply 450,000 kilolitres of petrol and diesel to the three fuel retailers and most of this is being taken by HPCL.

Of the 3,200 petrol pumps across Maharashtra , more than 50% are dry. Domestic flights were delayed due to oil shortage in Mumbai. A spokesperson for the MIAL, which runs the Chhatrapati Shivaji International Airport, said 73 flights were delayed.