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Clarity about OMCs soon: S Sundareshan, Petroleum Secretary

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S Sundareshan, Petroleum Secretary

S Sundareshan, Petroleum Secretary

Petroleum secretary S Sundareshan is confident that state-owned oil marketing companies (OMCs) will be adequately compensated for shielding consumers from rising global fuel prices. He feels the government has only two options: to shift from price control to a market-determined pricing regime or allow fiscal deficit to rise. Excerpts:

Ensuring better health of oil marketing companies (OMCs) was one of the three main objectives you had stated on February 1 after assuming the top office in the oil ministry. But the financial performance of OMCs has not been up to the mark.

Start with 2009-10. There is an accepted formula in place. Under-recoveries (Revenue OMCs lose on selling fuel below cost at government-determined rates) on petrol and diesel was to be compensated through upstream discounts and the government would pay for under-recoveries on kerosene and LPG (liquefied petroleum gas).

Out of Rs 31,000 crore under-recoveries on account of kerosene and LPG, the government has already paid Rs 12,000 crore cash compensation to OMCs.

The balance of about Rs 19,000 crore is to be made good by the government. So speculation with respect to the financial performance of OMCs for 2009-10 is premature and uncalled for.

We are at the beginning of the 2010-11 (financial) year. We have on the table the Kirit Parikh committee report, which is one solution to the problem of under-recovery. Such important decisions, which will have far-reaching consequences, take time. The timing of the decision is to be considered by the country’s leadership.

The future of OMCs is uncertain. Can we expect a decision soon?

The problem of under-recovery can be tackled only in two ways. The first is the hard decision related to pricing/decontrol (of fuel prices, as suggested by the Parikh committee), the other is to change the government’s admitted stance on fiscal deficit. I’m confident that in the next few weeks a formal decision will be taken and OMCs’ future will be ensured.

Another of your priorities was to have uniform gas pricing. What is the progress on this?

There are two different issues. Natural gas is produced through Nelp (New Exploration Pricing Policy) and joint venture blocks and also from pre-Nelp blocks (known as administrative price mechanism or APM gas) by ONGC and OIL. The issue of price revision of the APM gas is in the final decision-making stage.

The other is pool pricing, a completely different concept, which will ensure approximately uniform gas pricing for domestically produced natural gas irrespective of source of supply. It will also include LNG (liquefied natural gas). It is very complex. We are quite a distance away from this. First, we need to have connectivity (gas pipelines).

There has been a plan to have a national gas grid. How soon will it become a reality?

I’ve taken a review of pipelines being constructed by Gail India and Reliance. I’m very happy to state that all projects are progressing well and will be completed by 2012.

You had stated that country’s energy security is one of your top priorities. What is your perception of the progress in this direction?

We have to be lucky in exploration of oil and gas. Private companies have been lucky but it was not so with PSUs (public sector undertakings). But oil production from the Rajasthan field jointly by Cairn and ONGC has been substantial.

At the peak, production will go up to 8 million tonne (per annum) or more. Natural gas production from Reliance Industries’ KG-D6 has increased domestic gas production by 80%. OVL (ONGC Videsh Ltd) already concluded a contract in Venezuela which will start production in two years. Efforts are on.

In the case of ONGC, production at C-series is expected very soon. The company is facing some difficulties in the KG basin and these constraints are being removed. ONGC is seriously involved in ultra-deep exploration. Finding oil and gas is a matter of chance and I do hope ONGC and OIL would be lucky.

(Source: Economic Times, 21 April 2010)

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