Jul 04, 2013, 03.20 PM | Source: CNBC-TV18

Export parity price will lead refineries into red: Moily

Oil Minister, Veerappa Moily admonishes export parity pricing with an argument that this pricing technique will lead all refineries in to huge losses and the country may not see any new refineries coming up.

Admonishing the export parity pricing model for fuel products, Oil Minister, Veerappa Moily told CNBC-TV18 that if adopted this pricing model would lead all refineries in to red and no new refineries would come up.

It must be noted that just a month back Finance Minister P Chidambaram had strongly stated that oil marketing companies will get only Rs 20,000 crore from the government and Rs 60,000 crore from upsteam companies. However sudden depreciation in rupee is likely to severely impact OMCs under recovery.

Moily stressed that he had raised concerns relating to export parity pricing to the Prime Minister Manmohan Singh. " Prime minister having intervened and Kirit Parikh committee being constituted, the recommendation of the Kirit Parikh committee will have weightage," Moily said. However he added that if Kirit Parikh Committee also recommends going for export parity pricing then refineries will be the biggest losers. 

Kirit Parikh Committee report is expected in two-three month. Moily argued that export parity pricing is not suitable for India as the country meets 80 percent of its fuel requirement through import.

"If you want to make it only 100 percent export then the companies will go red, almost all the refineries will go red, and no new refinery will come up," Moily said.

Below is the verbatim transcript of Moily's interview

Q: Let me start by asking you about the impact of the depreciating rupee and as far as global crude prices are concerned, there was relief on that front because global crude prices have been coming off and have been stable between USD 102-104 per barrel but the depreciating rupee has offset all the relief that you enjoyed on account of the fall in global commodity prices. We have been speaking with oil marketing companies (OMCs) and they are clearly worried at this point in time about the impact, what is your own assessment of the rupee’s impact as far as the under-recovery is concerned?

A: It is a matter of great worry and the worst hit are oil companies. We have to stabilise this because now by every rupee depreciated, all companies put together we lose about Rs 9,000 crore. It is a disaster. We need to address it. Hopefully I think within two-three days time, rupee will stabilise.

Q: Have you had any conversations with the finance ministry on the possible options because you are clearly one of the most impacted parties, has there been any conversation with the finance ministry on what the repercussions of depreciating rupee could be, how oil marketing companies could be spared?

A: Yes we are in constant dialogue with them. That is why I am now reassured that within two-three days time, rupee will stabalise.
Q: What is the basis of that reassurance?

A: I think the Reserve Bank of India (RBI) can do some mid-course corrections, and the number of measures government has taken particularly on attracting foreign institutional investors (FIIs) and also the foreign direct investment (FDI) would also help. The investors’ confidence will rise. Once the investors’ confidence rises then possibly the rupee will stabilise.

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