Govt, oil sector profiteering from petroleum

The ‘friends of people’ — the major political parties when not in power and some other anti-establishment groups — used to clamour whenever the prices of petroleum products shot through the roofs. Now, a tricky situation has arisen for them: they need to protest every day, as the prices have been increasing almost by the day, thanks to the daily revision policy introduced in mid-June. Already petrol and diesel prices have registered an 8% hike in three months. The trend suggests a further rise, although with some slumps now and then.

The present daily pricing method, devised to avoid even a single day of shortfall in earnings of the companies and the government, is the culmination of earlier policies that could not be stalled by opponents of market-friendly policies. The Administered Price Mechanism (APM), through which the government controlled the prices, was dismantled way back in 2002; not just in one day, but after a decade-long planning.

The reforms-obsessed governments after 1990s — led either by Congress or BJP — made a U-turn from the first industrial policy resolution of 1948 which declared that “petroleum is a core sector of industry, the future development of which will be the sole and exclusive responsibility of the state”. The policy of, ‘social benefit’ was replaced with the ‘commercial profit’ doctrine and to invite more private participation.

Although the opponents could not stall the policy, they protested, though not to great success, each time the phased dismantling of the APM was implemented, which was experienced through a hike in the prices of petroleum products.

The drastic step of totally deregulating petrol price was taken on June 26, 2010. In pursuit of this policy, the present BJP-led government brought diesel also under market control in October 2014. The move was effected at an opportune time, when international crude prices were ruling low, because the government knew that the protests would be more pronounced only if it were done when international crude prices were high and the adverse effects of a policy change became apparent immediately.

Whatever the method, the need to bring in the policy changes was based on wrong claims: huge losses to oil marketing companies and heavy subsidy burden on the government. The government’s own statistics prove them wrong. Neither it gave
more subsidies than it had gained in various forms from the oil sector, nor were the oil
marketing companies suffering any loss.

During the five-year period leading to this change, from 2005-6 to 2009-10, the Government of India received a huge Rs 3,91,486 crore as tax and non-tax revenue from the petroleum sector, against the paltry subsidy it paid, Rs. 26,008 crore, which equalled 6.64% of what it received. Similarly, the companies under the petroleum ministry got a profit after tax of Rs 1,26,294 crore and the three public sector oil marketing companies gained Rs 36,653 crore.

The petroleum and natural gas statistics-2015-16, compiled by that ministry, show the trend of increasing profits. The central government, for the six-year period from 2010-11 to 2015-16, received royalties from the crude of Rs 95,030 crore and, from gas, Rs 19,744 crore. Towards the oil development cess, it got Rs 62,689 crore for the same period. Similarly, its excise and customs kitties together got Rs 7,37,774 crore. Also it garnered the dividends of Rs 86,589 crore. In addition, state governments got nearly Rs 7 lakh crore from the oil sector.

The three public sector oil marketing companies, accounting for 93.6% of the 56,190 retail outlets in India, too, continued to make enough profits. The Indian Oil Corporation’s profit after tax in 2015-16 was Rs 10,399 crore and was expected to grow next year to Rs 14,974.77 crore; the BPCL’s figures were Rs.7,432 crore and Rs. 6,123 crore; and, that of HPCL were Rs. 3,862 crore and Rs 4,500 crore. So, the oil sector is undoubtedly robust and getting stronger commercially by the day.

Oil lubricating subsidies

As per the government’s own admission: “the share of the petroleum sector in total subsidies has declined from 23.34% (Rs. 60,269 crore (actual) in 2014-15 to 11.64% (Rs 30,000 crore (RE)) in 2015-16 and is budgeted at 10.76% (budget estimate) in 2016-17”.

It is not true that the government gave any subsidy to the oil sector. What is true is that the oil sector met the cost of all the government subsidies. The total subsidy bill of the Centre in 2015-16 was Rs 2,57,731.95 crore, whereas it got a revenue of Rs 2,63,130 crore from the oil sector alone, which included royalties (Rs 16,774 crore), oil development cess (Rs 15,854 crore), Excise and customs (Rs 2,13,995 crore) and dividends (Rs 16,507 crore). In addition, the sector has given Rs 1,42,938 crore to state governments’ exchequers.

All these macro facts themselves justify the need and demand for reducing petroleum prices without harping on much talked-about facts like per litre cost, tax load and the like. It is not correct for the government to hide facts behind the claims of excessive import dependence of crude; it should not forget to factor in domestic crude production while framing the price policy.

For instance, in 2015-16, 36.950 million metric tonnes (MMT) of crude was produced domestically and 202.85 MMT imported. Also, more than the required quantity is refined.

The value of total petroleum imports, in 2015-16, was Rs 5,27,765 crore against exports worth Rs 1,76,773 crore. It is an admirable fact that the country is producing more than it needs and it should increase the refining capacity multi-fold. But the government should share the benefits with the people by stopping itself from profiteering.

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