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Need for aggressive exploration, acquisition of oil and gas assets

business Updated: Dec 12, 2011 15:30 IST

Oil prices were deregulated in June 2010. Oil companies are now moving their prices in tandom with international crude prices. However, escalating oil prices in India attract a lot of debate and flak. UD Choubey, director general, SCOPE, the apex body of central public sector enterprises, spoke to HT on the matter. Excerpts:

How is deregulation of petrol prices being viewed?
Deregulation of petrol prices is seen as a welcome change by the oil marketing companies as it has granted them the required space and entrepreneurial freedom in pricing their product competitively without causing major dent on their revenue structures. They are incentivised to align their marketing margins with operating costs.

The deregulation also follows that the government would continue to reap revenue from the sale of the fuel. While intelligentsia wants deregulation, the poor citizens want the subsidy to stay. Pricing structure need to find out a balance between the two.

What is the current scenario on oil pricing in India? Is it comparable with the international oil price trend?
Deregulated petrol prices in India have aligned with international crude oil prices. Effectively, if the international oil prices increase, the petrol price would also increase and vice versa. At the same time, the pricing anatomy in India flows from a basic international price of crude oil per barrel as the starting point. To it is added the refining and transportation cost, dealer's commission etc. and superimposed on it is the taxation and duties etc. along with freight and eventually, the marketing margin. Hence, actual selling price is interlinked to all these factors and not the international crude price alone.

Can an optimal balancing of pricing policy be achieved, given the highly volatile international crude prices scenario?
In June 2011, the government reduced the customs and excise duties as a result of which the under recoveries of the oil marketing companies for 2011-12, came down by Rs 50,000 crore. As far as taxation is concerned, around 40% of the petrol price works out to be on account of central and state taxes and duties. A reduction in these taxes can eventually help the consumers but government's revenue needs are important factor for overall economy and warrant a consideration.

Given the backdrop of international occurrences and linkages to our petrol pricing since deregulation, petrol prices have been raised 10 times and brought down only twice? How do you view it?
The oil marketing companies are already reeling under the impact of 'under recoveries' on account of government failing to compensate for the loss incurred upon selling diesel, domestic LPG and kerosene at lower than market price. In order to remain competitive and self sustaining, the OMCs have hardly any alternative. The Indian economy needs to adjust to the global trend and eventually become a self-sustained economy in terms of its energy needs.

How much does rupee depreciation have in their inflationary trend?
India is the fourth largest consumer of oil and imports about 75% of its crude which is likely to go up further unless a substantial new source of oil and gas is discovered.

Since imports of crude are very high, rupee depreciation vis-a-vis US dollar has a pronounced effect on oil prices in the country. Even in the case of falling international crude prices, while the Indian crude basket may become cheaper, this is offset by weakening rupee. There is, therefore, need for aggressive exploration activity incentivising investment by multinationals and acquisition of oil and gas assets outside, failing which things would worsen. Till then, remedy lies in a compromise and sacrifices by all the three players i.e. the government, oil marketing companies and the people at large.