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Sep 10, 2012, 03.03 PM IST
RS Sharma, Former Chairman of ONGC tells CNBC-TV18, fuel price under recovery situation is extremely worrisome. According to him, over the past couple of years things are getting worse and he calls for a proper mechanism to tackle such issues.
I feel not taking a decision on this is going to be catastrophic for the country.
Former Chairman, ONGC
Not taking into consideration the losses incurred by oil marketing companies, the government has decided to defer fuel price hikes. RS Sharma, Former Chairman of ONGC tells CNBC-TV18, fuel price under recovery situation is extremely worrisome.
According to him, over the past couple of years things are getting worse and he calls for a proper mechanism, "I had very strongly advocated for putting a mechanism in place rather than this ad hoc way of taking calls whenever it suits the government," added Sharma.
Sharma believes the hike is put on hold due to the political stalemate. Moreover, the budget subsidy allocation provided to oil companies for FY13 has already been utilised in FY12.
The oil marketing companies have come close to exhausting borrowing limits and the government needs to take some unpleasant decisions soon, opined Sharma.
Here is the edited transcript of the interview on CNBC-TV18.
Q: What's your sense of where this thing is headed, because even petrol prices are not being raised for so many weeks now?
A: I feel this is an extremely worrisome situation. If we look at the trend over the past couple of years, things are only getting bad to worse and if you recall in my earlier interactions, I had very strongly advocated for putting a mechanism in place rather than this ad hoc way of taking calls whenever it suits the government.
That only shows lack of willingness on the part of the policymakers and I feel situation of this ad-hocism is going to land us in worse situation. I foresee if no definitive measures are taken, there is going to be absolute chaos and there is going to be anarchy in the country.
It is not being realized that these oil marketing companies make available petroleum products to every nook and corner of the country without any disruptions and in case they don't get the credit, they don't get the borrowings, their credit ratings are downgraded and it is going to be an absolutely hopeless situation. I am extremely worried about this.
Q: What was your take on what the Oil Minister has to say last Friday on no decision being taken and that there is no imminent fuel price hike that is planned?
A: Unfortunately, that is what I had been apprehending also, because looking at the state of the political climate in the country, the government being on the receiving end on various issues, the entire parliament session having been washed out, taking any unpleasant decision in such a situation would probably call for trouble and that is where it is.
But, we are only deferring the inevitable and inevitable could be worse than what the people think. Having been tracking a situation like this for quite sometime, I feel not taking a decision on this is going to be catastrophic for the country.
Q: What is your expectation of how much may happen in diesel, even if they touch it how much do you think is acceptable or can be pushed through?
A: Again that's a political decision. These companies which are listed entities, commercial enterprises, navratnas and IOC is the number one Fortune 500 company in the country, but they do not know their fate. The budget provision for subsidies in the petroleum sector was about Rs 45,000 crore. Rs 43,000 crore has been used up to meet the under-recoveries and subsidy support to these companies over last fiscal.
The government has to go for demand for grant to give them any sustainability. Look at the Q1 results of these companies, they have reported unprecedented losses. Which direction we are heading to? I am afraid nobody is taking note. The unpleasant decisions have to be taken and they have to be taken in a more measured way.
There have been three committees earlier to decide on this pricing structure. We had Rangarajan Committee and we had VK Chaturvedi Committee. The last one was Dr. Kirit Parikh Committee and all those committee recommendations are gathering dust somewhere. I feel they think that is the convenient way, that is to not take a decision. That is unfortunately what is happening.
That is extremely worrisome. How much will they be able to raise, again that's a political question. It’s not possible for any person with economic sense to give a prediction that how much price increase will be given, how much will be absorbed in the system, it's just a hopeless situation.
Q: So far there has been no compensation this year of the kind of losses that oil marketing companies have been sitting on. Eventually what will happen? Do you think the subsidy sharing burden might change by the end of the year with the Finance Ministry saying that it does not have the cash to compensate?
A: Whatever budgetary provision they had for the current fiscal has been used up to meet the subsidy support for the last fiscal. Somehow these companies were just above that red line and they are just living on sustained support. Life support system of the company, their financials have been there, but look at the borrowings which have gone up to Rs 1,57,000 crore.
How long will they keep borrowing and the government's credibility itself is under a lot of pressure. That will further downgrade the credit ratings of these companies. I feel that is around the corner. If there is going to be a worse situation, it is better to be late than never. I have been saying that one has to catch the bull by the horn and at least take some unpleasant decision. Perhaps, best thing would be to give some ad hoc increase, create another committee, I will be happy to support any such endeavour because I have worked relentlessly on working out a mechanism, a model under which the under-recoveries and the price increase should be absorbed by all stakeholders.
We had given a model, but again that has not seen the light of the day and therefore, that is the way it is. I feel we who care for the economy, for the country are just feeling helpless.
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