The public sector oil companies are not in the red as the Government would want us to believe. The Petroleum Ministry is raising a bogey to justify repeated price rise. So, is dismantling of the APM just a ploy to benefit private players?
The public sector petroleum companies are not in the red as the Government would want us to believe. The companies have never stated they are incurring losses. All they said was they were 'under recoveries'. Curiously, while the Government claims that Indian oil companies are making losses, petroleum companies across the world like Shell, Exxon and British Petroleum are making staggering profits.
In fact, the step to dismantle the administrative price mechanism is being taken to not really benefit the nine public sector oil companies. It would rather benefit private players, who find it difficult to compete with the tight-budgeting PSUs. Therefore, it may be seen as a sequel to the agreement between two feuding brothers of one of the largest oil companies, whose retail outlets were in jeopardy as the PSUs maintained just prices.
The Government's move is an effort to project that it is creating a 'level-playing field'. In reality, it would expose the PSUs to unfair and unethical competition. Not only would it have an impact on the economic health of public sector oil companies, the common man would become fodder for not-so-responsible private players.
The last time the APM was dismantled in 1997 by the United Front Government, it had a deleterious effect. It led to spiralling of prices of commodities. So quietly the Government reintroduced the APM mechanism to reduce exploitation of consumers.
It is interesting to note that the Government's statement in Parliament during the Budget session has actually confirmed that private oil companies are not working in the interest of the country. The Government has claimed that the country is "not only self-sufficient in refining capacity but also exports substantially" without divulging details.
Now, sample this. Out of the total domestic refining capacity of 179.9 million metric tons per annum, private sector oil companies refine only 72.5 mmtpa. It is well known that most of the oil refined by private sector companies, even the oil spud offshore Krishna-Godavari, Mahanadi, Cambay and other basins, find their way to markets abroad. Thus, private sector oil companies make huge profits.
The Government has tried to justify its action saying it is a bid to offset `22,306 crore subsidies — 'special securities' in official terminology — "towards under recoveries on account of sale of sensitive products in 2009-10". In reality, the Government notionally paid only `12,000 crore to public sector oil companies. The companies had actual deposits worth `10,306 crore with the Government, which was adjusted against the 'special securities'. Actual subsidies were to the tune of `3,125 crore on account of part subsidy on LPG, PDS kerosene and freight subsidy for supply to North-East and far-flung areas.
Nothing has been paid to public sector oil companies for their claims under APM since 2007-08. The Ministry of Petroleum categorically states that it does not provide any budgetary support to finance annual plan outlay of `69,457 crore. The Ministry says, "The projects are implemented by oil PSUs out of their internal resources". In 2010, only `36 crore has been allocated as plan support for setting up Rajiv Gandhi Institute of Petroleum Technology at Rae Bareli in Uttar Pradesh.
This also substantiates that public sector oil companies are generating enough revenue to sustain their activities despite the APM and pay hefty taxes to the Government. The Indian Oil alone paid over `58,000 crore as tax. Now, this is a revelation. It means that if public sector oil companies make profits then there is no justification for private sector oil companies to export products instead of selling in the domestic market.
The new exploration policy gives them unfettered freedom. It is time the Government amends NELP for companies registered in the country. This would bolster profits of public sector oil companies.
Despite an increase in petroleum prices in international market, oil companies have made profits after paying tax. This only substantiates the fact that prices of petro products were remunerative even before the increase was announced.
Indian Oil Company earned a profit of `2,228.28 crore after paying tax of `805 crore; ONGC made `13,096 crore; Bharat Petroleum pocketed 834.44 crore, and Oil India and GAIL India earned `2612 crore and `2,229 crore, respectively. Hence, the latest petrol price rise is misplaced.
The companies have paid staggering taxes as the tax component on petroleum products comes to over 50 per cent of the sale price. Indian Oil alone paid `25,196 crore as tax last year to the Union Government and `32,773 crore to State Governments. All other companies paid similar tax, apart from income tax. The tax components of all companies together would surpass `1,00,000 crore.
So even if we accept the Government's argument that companies are suffering "losses", it appears that bureaucrats are not presenting the correct picture to the Minister and creating a bogey to justify the unjustifiable. Statistics are being twisted to present a case that is not there.
Whatever the Government is trying to project as its largesse is actually misplaced. If taxes are rationalised, none of the public sector oil companies would even have the so-called 'under recovery' shown in their books.It is high time the Government rationalises the tax regime and allows PSUs to grow, instead of giving private sector oil companies the right to fleece.