Small hikes 1st step in big oil deregulation leap: Moily

Union petroleum minister Veerappa Moily explains, in an interview with CNN-IBN editor-in-chief Rajdeep Sardesai, that allowing OMCs to initiate small corrections in diesel prices taking various factors into consideration is the first step towards the complete deregulation of the oil sector.

Below is an edited transcript of the interview on CNBC-TV18

Q: Have you decontrolled diesel prices or not?

A: In 2010, the Cabinet had decided to deregulate diesel prices but for some reason or the other the decision was kept pending. Vijay Kelkar (Indian economist and academic who was the chairman of the Finance Commission until January- 2010 and was earlier advisor to the minister of finance from 2002 to 2004) looked into all aspects of deregulation and accordingly submitted a report. Having taken these recommendations into consideration, we have now given liberty to all our oil marketing companies to implement small corrections in prices in the days to come.

Q: What do you mean by small corrections? Has the government given oil companies the licence to initiate small corrections in prices? Can they initiate price-increases according to market conditions? Will diesel prices be determined by the market or the government?

A: The oil companies will take into consideration various aspects of the market such as operations, problems and concerns of the consumers before implementing a small correction in diesel prices.

Q: Why use the word small correction? Does that mean the government is still not fully willing to deregulate diesel prices as recommended by the Kelkar Committee? The Kelkar Committee does not talk of small corrections, it suggests oil and diesel prices be deregulated. Is the government attempting a balancing act by using the word 'small correction'?

A: The Kelkar Report does not recommend the deregulation of the entire oil sector at one go. The report suggests deregulation over the course of 24 months. The price-corrections need to be small to avoid adverse disruptions in the sectors that are dependant on the oil and gas sector..

Q: The subsidy bill is about Rs 96,000 crore for diesel and Rs 9,000 crore on LPG. Will the government in the next 24 months or in that timeframe completely deregulate the oil sector and that only the first step has been taken today?

A: We have taken the first and the decisive step. The matter of deregulation has been left to the discretion of the oil companies. Ultimately, the survival of these companies is also very important.

The government cannot bear the subsidy or under-recovery burdens of the OMCs any longer and the companies will have to start bearing the burden of the subsidy.

The government will look into the health of the OMCS and of the economy. Ultimately, the government’s philosophy is for a sustainable economy.