Predatory policy

Updated: Aug 31 2007, 04:35am hrs
The coming together of the countrys three biggest private players in the oil market against the governments playfield-distorting practice of subsidising oil products sold by their public sector rivals is not just a rare occurrence, it is evidence of just how much of a sore point this has become. The current policy of having PSU oil marketing companies sell petroleum products at below-cost prices, without any compensation for private marketers, is deeply inequitous and injurious to the future of the sector. While PSUs continue to lose money, on the assurance of periodic oil bonds to bail them out, private players have seen their market share dwindling from 15% to 1% from April 2006 to September 2006. Today, they find themselves simply priced out of the domestic retail business, and having to resort to exports to keep business going.

Any fair-minded competition authority would frown at such a state of affairs, for it amounts to predatory pricing on the part of PSUs. Yet, five years since the Competition Act was first passed, the Competition Commission has remained in limboeven though an amendment Bill is currently in Parliament that should, with luck, make this authority operational at long last. Among the first cases it must tackle should be the complaint made by private oil companies. Here is a clear story of the government using its power to support the inefficient and penalise the efficient (the top private player boasts of a gross refining margin thats 50% higher than that of the top public company), and that too, in the name of consumer welfare and lower petrol prices. This system of subsidies is unsustainable even from a fiscal standpoint, and the sooner something is done, the better. Perhaps the private players should be pleased to see their public sector counterpartssaddled with under-recoveries totalling Rs 12,912 crore in this fiscals first quarterdemanding another round of price hikes, the last having taken place nearly a year ago. But what India needs is a stable solution, and this can only be one that acknowledges the reality that is the international market. The least the government should do is compensate private players, or else further private investment would be dissuaded in this sector. Oil is too important a sector to be treated in so cavalier a fashion.