The unrest in the region could put pressure on crude prices
If that happens, India, which hasn’t completed reforming its petro sector, is poised to slip harder than other big importers. And what could make it worse, say senior petroleum ministry sources, is the finance ministry’s apparent reluctance to dismantle the prehistoric Administered Price Mechanism (apm) governing imports and pricing.
Finance minister Yashwant Sinha is caught between the proverbial rock and a hard place. The troubled economy has already forced him to slip behind the fiscal deficit target. If the apm goes on April 1, 2002, as scheduled, he will either have to clear the Rs 14,500 crore dues owed to the petroleum companies, the amount that goes by the name of oil pool deficit (opd), or add that to the fiscal deficit. Neither option, however, is tempting.
The only way out is to raise prices of kerosene, lpg and diesel, the products way behind market prices now. This will wipe out, or at least minimise, the oil pool account and earn him praise from multilateral and sovereign credit rating agencies which include the opd in their calculations anyway. Says a hydrocarbon analyst from a US investment bank: "Oil prices will fluctuate till the current war clouds are cleared and the government is dreaming if it feels prices will plummet and our opd will be erased." The delay in dismantling the apm will also hit the stocks of hpcl, bpcl and ioc as their profitability stood to witness a big jump with the return on marketing assets moving in tandem with global trends.
India imports nearly 70 per cent of its 80-MT crude requirement and, as the PM reminded the nation recently, a hike of one dollar translates into a Rs 3,600 crore jump in the oil import bill. At the ruling crude prices, the latest import bill estimate is a whopping Rs 75,000 crore, or over 70 per cent of our fiscal deficit.
Forget the budgetary problems. Any sharp price hike has fearful implications for crucial industries like transport, automobiles, petrochem, chemicals, cement and steel, and of course, the consumers. The turmoil may also compel ongc to scout for new reserves as an emergency measure to prop up domestic production, or ioc for new imports. Says Bhutani: "We have ignored Myanmar, Bangladesh and the Asia-Pacific belt. It’s time we reduced our overwhelming reliance on West Asia."
India’s reserves will last till November. But analysts worry about the peak winter months when prices stiffen. "The crisis has come at the worst time. December delivery rates in the futures market are already escalating. We cannot escape scalding when we approach the market for supply renewals," said a senior ministry official.
The only silver lining: Since crude prices are dollar-motivated, the US will possibly intervene to check price manipulations. After all, the last thing a weary global economy wants now is a long, cold winter.