The Hindu Business Line : Move to decontrol ONGC's crude sale from Mumbai High

The state-owned refineries like Indian Oil Corporation have voiced concern over the Petroleum Ministry's move to allow crude oil producer Oil and Natural Gas Corporation (ONGC) to sell its entire output from Mumbai High (MH) fields to the refineries through market related price. ONGC has recently received an in-principle nod to auction its crude from Mumbai High.

ONGC, which was asked to work out guidelines for the auction mechanism, has now submitted the draft to the Petroleum Ministry, sources said. The state-owned refineries, on the other hand, want the current mechanism of crude sale to continue, stating that till the international crude prices do not stabilise, the scenario was not right to take such a decision. Besides, in the absence of deregulation of product prices, decontrol of crude prices would cost the refiners dearer. If the Government was looking at deregulation of crude sales, then the refiners such as Bharat Petroleum Corporation and Hindustan Petroleum Corporation would have to shell out more for their crude oil purchase, sources told Business Line.

Crude Price

Under the present system, the Ministry apportions 16 million tonnes of the Mumbai High crude to the refiners on a nomination basis, without allowing free market pricing. Almost 40 per cent of the country's crude output is from these fields. The Mumbai High crude price is tagged to the Nigerian Bonny Light, but refiners get a discount of $1.5 per barrel plus relief on customs duty, sales tax and sea freight. If the auction mechanism is allowed, the crude would fetch ONGC at least $6 more per barrel, with refiners outbidding each other for the premium crude.

According to the oil refiners, a lot of questions needed to be answered, including whether the auction mechanism would be only for state-owned refiners and what would be the pricing process. Till these are addressed, a decision to this effect would be premature. Most of the refiners are also into oil retailing and their losses would further increase as retail prices are controlled. The upstream oil companies — ONGC, GAIL and OIL — shared a major burden of the under realisation suffered by retail companies on sale of petroleum products below cost price.

Auction Process

So, all of the gains from the auction process may not add to ONGC's bottomline, as some of it will find its way towards meeting the additional subsidy burden, till the Government deregulates prices or changes the subsidy-sharing formula, sources said.

Asked whether the crude sales is also factored in while calculating subsidy burden sharing, a Petroleum Ministry official said, till now there was no auctioning, the issue will come up only after auctioning is permitted.

The refiners have sent their views on the issue to the Ministry, stating that more deliberations should take place before any final decision is taken.

More Stories on : Petroleum | Policy | Oil & Natural Gas Corporation Ltd

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Move to decontrol ONGC's crude sale from Mumbai High

Draft paper for integrated view of energy policy

GVK to rope in partners for ultra mega projects

PepsiCo India to revive tomato production

Major initiative to revamp handloom sector in the offing

Tighten up margining to curb volatility, says SEBI

Dotcoms on the radar of VCs