Banking - Yojana

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The established marketing
companies have pipelines and
storage facilities, but they have to
make huge investments to expand
these facilities for their own needs.
New entrants will have to build new
facilities as soon as possible.
Moreover, so far risks were
almost nil in marketing, as
companies had fixed margins and
prices fixed under APM. Now the
companies have to deal with risks
including price risk for crude oil,
refining margins and foreign
exchange risks. Assured margins
are now a thing of the past and
companies will need to adopt
global risk management practices
to protect their margins.
Oil companies at present source
import crude oil through tenders
which is a time consuming process.
This does not reflect, the prevailing
market prices, which fluctuate on
a daily basis. All international
majors like Shell, Exxon, Mobil
and Chevron have energy trading
departments which monitor crude
prices on daily basis to protect the
company from price fluctuations
and reduce the impact on their net
profits.
In this situation, also, public
sector oil companies are now better
placed in the deregulated regime.
It would be two to three years before
their market leadership is
• challenged by new private en tran ts.
The retail marketing margins of
oil companies is expected to go up
by one per cent in the new era of
free market pricing, according oil
industry experts. Margin expansion
would be highest in retail
automotive fuels of diesel and
petrol, the areas of real
competition. The automotive fuels
account for nearly 50 per cent of
the total volume sales. The domestic
diesel sales stood at 40 million
tonnes, while that of petrol was at 8
million tonnes during 2001-02.
Kerosene sales accounted for 10
million tonnes during the year.
India's total consumption of
petroleum products during 2001-02
is estimated at 100 million tonnes.
Net imports of petrol and diesel
stood at 3 million tonnes.
Products Import
Though petroleum sector was
deregulated from April 1, imports
of petroleum products particularly
petrol and diesel, have not been
freed and would continue to be
routed through designated State
Trading Enterprises (STEs). "The
country is surplus in refining
capacity and we see no point in
flooding the domestic markets with
imports," Petroleum Ministry
officials said. While import of crude
oil was decanalised last year, imports
of petroleum products would
continue to be' regulated.
"Industrial slowdown has created
exportable surplus in the country.
There is no logic in allowing
imports when we are looking at
export markets, particularly for
diesel," official sources said.
Dismantling of the administered
pricing mechanism has freed the
pricing of petroleum products and
allowed private sector companies to
enter lucrative retail marketing of
petrol and diesel.
Companies who have invested or
propose to invest Rs. 2,000 crore in
creating oil infrastructure like
refinery, pipeline and terminals are
eligible for setting up retail network
but they would have to source the
products locally. "We are studying
the implications of opening up of
the sector after over three decades
of administrative controls. Imports
of petrol and diesel would be
allowed only after we established
norms ,of a free market and a
credible regulatory mechanism is
established," sources said. Sources
said the Petroleum Ministry was
contemplating whether imports of
petroleum products, if allowed,
should be through Open General
License (OGL) or some basic
minimum conditions be imposed
on the imports.
Even though the quantitative
restrictions on international trade
have been removed, the
government could retain the
imports and exports of petroproducts
through STEs, as the
WTO rules permit the same.
The long awaited deregulation
of the Petroleum sector has come
about. But from the consumers'
point of view, there is hardly any
evidence of deregulation at work.
That is in marked contrast to the
happenings in the other key sector,
the telecommunication industry,
which has been opened up
simultaneously. All types of
telecom users are already reaping
the benefits of competition.
Telephone tariff has been coming
down rapidly continuing a trend
that began a few months earlier. In
contrast, the retail prices of
petroleum products have not
changed significantly since Aprill.
In a deregulated environment they
are supposed to be determined by
market forces and consequently
reflect the international price
movement.
More importantly, there will not
be a transformation from a
controlled regime to a market
dominated one eve'n over the next
few months. The government will
continue to have a decisive say in
theprices of the big four petroleum
products- petrol, diesel, LPG and
kerosene. Part of the reason as to
why changes have been so few has
to do with the complex nature of
the institutional ari-angements in
the hydrocarbon sector and its
YOJANAJuly 2002 21
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