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Oil panel report a damp squib

Neena Haridas in New Delhi

At a time when the government's skyrocketing oil bill is causing a hefty rise in prices of petrol and liquefied petroleum gas or LPG, the report of the Group on India Hydrocarbon Vision-2025, which was prepared by a high-level team, seems to have nothing solid to recommend.

The report was submitted to Prime Minister Atal Bihari Vajpayee last week. It was prepared by a team comprising India's finance minister Yashwant Sinha; Union minister for petroleum and natural gas Ram Naik; external affairs minister Jaswant Singh; deputy chairman of the Planning Commission KC Pant; secretary, Prime Minister's Office NK Singh and a host of other industry experts.

However, industry leaders have dubbed the report, which is aimed at making recommendations towards improving petroleum production and marketing, 'pedestrian'.

The report has suggested long- and medium-term strategies to be followed in order to increase exploration and production, oil security, refining and marketing and to rationalise tariff and pricing.

Following are excerpts from the report:

Objective -- Exploration and production sector: To optimise production of crude oil and natural gas efficiently.

Strategy - Continue exploration in production basins: Target 100 per cent exploration coverage of the Indian sedimentary basins by 2025.

Objective - Natural Gas: To encourage use of natural gas, which is a relatively clean fuel.

Strategy: Timely and continuous review of gas demand and supply options to facilitate policy interventions.

Objective - Refining and Marketing: To develop a globally competitive industry.

Strategy: Set out a timetable for achieving product quality norms to conform to cleaner environmental standards and to global standards by 2010.

"These are steps that have to be taken by any country that is involved in production and marketing of petroleum products. What the industry requires is specific recommendations that will give a direction. The government needs to take specific steps to increase exploration," says Tarun Das, director-general, Confederation of Indian Industry or CII.

"Our oil explorations are still below our potential. The government needs to see to it that the allocated funds for exploration are used to the optimum. There seems to be no specific recommendation on any of these boiling issues," he adds.

The public sector oil companies are also rather peeved with the report. Says an official in the Oil and Natural Gas Corporation or ONGC, "The team that prepared this report comprises ministry bigwigs, but the result is laughable. What do you mean by saying 'to develop a globally competitive industry'? Everybody knows that is what is required today. There is no point in setting out such broad-based objectives with no specific agenda."

"It looks as though the report was prepared in a hurry. It has things that everyone knows. How will it help the industry? We are really aware of what should be done -- we need help from the government in definite areas and we were looking forward to this report because we thought our requirements will be spelt out in it," opines a public sector oil unit official.

However, the report does have a few specific suggestions towards improving the refining and marketing of petroleum products. These recommendations are aimed at moving towards a consumer-oriented competitive market. These include:

• Increase the ceiling of foreign direct investment in refining sector from the present level of 49 per cent to 100 per cent.
• Formulate a clear, stable, long-term fiscal policy to facilitate investment in refining, pipeline and marketing infrastructure.
• Grant full operational freedom to existing public sector units or PSUs to establish and maintain marketing networks.
• Allow entry of new players in to the marketing sector through a transparent and clear entry criteria and provide a level playing field for new entrants.
• Make marketing rights for transportation fuels conditional for a company investing or proposing to invest Rs 20 billion in exploration and production, refining, pipelines, or terminals. Such investment should be towards additional assets and in the form of equity.
• Provide for level tax rates for domestic products vis a vis imported products.
• Take up with states the issue of uniform state-level taxation on petroleum products.

"The report is half-baked. On the exploration front, it does not make any concrete suggestions and that is an area that needs attention if our oil imports and the prices of petrol, LPG and diesel are to be brought down," says Amit Mitra of Federation of Indian Chambers of Commerce and Industry or FICCI.

"It is found lacking on this count. However, the silver lining is that the report makes a few recommendations on rationalising tariff and pricing and divestment. These are not concrete steps, but at least the report draws the government's attention to the issue," he adds.

The report has also suggested phasing out of existing subsidies as early as possible and to set up a group of experts to determine appropriate levels of tariffs and duties for introduction in a phased manner.

On the divestment front, the report has suggested that the government should announce a policy with regard to specific public sector enterprises in alignment with the overall divestment policy of the government.

It has also suggested divestment of oil PSUs in a phased manner. Without drawing out any specific strategy, the report has called on the government to make available state-of-the-art technology to the industry and to use information technology to the fullest to restructure oil PSUs.

According to sources in the oil and petroleum ministry, the government is expecting an investment of $ 250 million in the next two years from domestic and international oil companies for exploration of oil in the 25 blocks awarded under the New Exploration and Licensing Policy or NELP.

The investments are likely to touch the $ 2-billion mark in the second phase, if preliminary exploration indicated major oil deposits, petroleum ministry officials said.

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