Dial 9/11 For Gas

Who would have imagined that September 11 will come with a silver lining for Yashwant Sinha? In a strange twist, the WTC bombings have in fact resuscitated Sinha's next Budget from fiscal disaster, as India's oil economy stands poised to enter a deregulated regime.

If the WTC catastrophe hadn't happened, Sinha, grappling with an ever-rising fiscal gap, would have had to absorb the skyscraping dues that the government owes to petroleum companies as the oil pool deficit. The gap, which at the beginning of this fiscal stood at Rs 12,600 crore, was revised in August to Rs 19,000 crore if crude prices stayed stuck at $26 a barrel.

But September 11 triggered a global recession and depressed crude prices to sub-$20 levels. This has ensured that the oil pool deficit will actually shrink. According to the latest calculations, the price plummet from $32 a barrel in September to $23-$24 by October has reduced the deficit by Rs 600 crore in November. Says an oil ministry official: "The continuous depression in October and November will further reduce it by Rs 1,000 crore." It may even come down to Rs 9,000 crore if prices remain constant till March.

This downturn is good news for oil PSUS. In end-August 2001, the government owed Indian Oil Rs 7,500 crore, which, according to senior company officials, has come down in the past three months to Rs 6,300 crore. Petroleum ministry officials have already altered the oil economy budget, with the crude imports estimate for 2001-02 slashed by 5.28 per cent. The crude import bill has also been reduced by 15.5 per cent from the initial $16.8 billion to $14.2 billion.

With Russia and other non-OPEC countries refusing to toe the OPEC line, officials feel prices will stay depressed in the future. Although OPEC wants a half-a-million-barrels-per-day (bpd) production cut from Russia, Norway and Mexico against its own figure of 1.5 million bpd, Rajendra Pachauri, director general, TERI, remains sceptical: "The Russians are keen to recapture the erstwhile marketshare of the Soviet bloc which dropped drastically after the disintegration of the republic." Thus, when OPEC wants to jack up prices through production cuts, Russia floods the market with cheaper oil. Says Pachauri: "Putin may not stretch too far to help OPEC as the Chechen crisis is a constant irritant."

Says an Indian Oil official: "Non-OPEC countries are desperate to wrench oil prices out of the cartel's grip and bag greater market access. But the excess capacity that both OPEC and Russia enjoy will now always influence oil prices. A sudden spurt in demand can be met with that surplus and this feeling itself will check a drastic price escalation."

Other factors are also at work. Explains Partha Bardhan of PricewaterhouseCoopers: "This time the inventory positions are better than in the last fiscal and even in mid-December the winter is milder."

Back home, as a flip side to the oil-pool-deficit issue, the Centre will take a hit of at least Rs 1,500 crore in indirect taxes in the current fiscal because of the drop in customs duty collections from crude imports. These were estimated at Rs 15,000 crore in the Budget, but the target will now be missed by around 10 per cent. But India gains in the bigger picture.

As the April 1, 2002, deadline for the Administrative Price Mechanism (APM) dismantling draws near, the government has chalked up a plan to liquidate 80 per cent of the deficit through seven-year oil bonds.Although Naik insists that things will only be finalised next week after discussions with the finance ministry, he assures that "the major chunk of the bonds will be issued before March 2002".

The CAG will do a special audit of the oil pool account for the period till March 31, 2001, and another one for 2001-02. The deficit will be liquidated in two stages, after the audit results are available. The government will first issue bonds equivalent to the audited pool deficit up to March 2001 before APM is discarded, and later for the rest.

Apprehensions, however, remain over this cash management issue. Says Pachauri: "These bonds should be the last of their kind." The government should ideally raise the price of heavily subsidised petroproducts and bring them in sync with market realities. But it's already talking of a price ceiling in "consumer interest". The slippery times are just beginning.