OMCs unlikely to make windfall gains via hike: Ex-ONGC CMD

Sharma: The issue is I have been calling that this decontrol is a regulated decontrol because we have seen the government coming in and intervening whenever situation arises. Right now, what we read in the papers this week itself that OMCs have incurred an inventory loss of Rs 5,000 crore in the last quarter. So the issue is that somehow these companies, their financials have also to be sustained.

We must bear in mind whenever the issue comes for issue relating to OMCs thanks to these three companies Indian Oil Corporation (IOC), Hindustan Petroleum Corporation Limited (HPCL), Bharat Petroleum Corporation Limited (BPCL) their marketing distribution network is so extremely good. So, all that distribution cost etc they have been absorbing and in a way it is a relief to these companies that the inventory losses they have incurred are getting compensated by the government to allow them to make some profit on this petrol and diesel.

I am not too sure whether the extent of the profits still being made, are these figures correct or not, but since you are showing it I believe that must be true but I can only say that these companies will not be making any windfall gains despite the retention of this.

Parikh: The consumers have no real moral right and ground to complain because for half the year they were getting normal subsidy and the government was bearing by using the excise duty and passing on all kinds of under recovery it was financing in different ways. So, now when the price has come down the consumers should try to balance it. It is the end of the year, let’s say, if the total under recoveries become zero and then till that time there is no real reason why consumers should complain because in the past they were getting so much of benefits because the government had cut down the excise.

Nayantara: But this is not deregulation. Whether the consumers have a reason to be upset, not upset this is not deregulation.

Parikh: No, that is not true. Because you can say what is deregulation. Deregulation is that you may really need to pass the international prices to domestic consumers and take care of all the taxes and other things that the government imposes on it. We are literally interpreting deregulation as that the government should not change any policy and still get the international price to be passed on to the consumer. You recognise that for the first six months of this financial year there was a huge amount of under recovery and the government was periodically as the prices in international market was going up was reducing their excise duty and still no consumers complained.

Nayantara: You are saying the windfall gain is not truly windfall because they have huge losses, a huge backlog of losses, they have crude inventories etc. You have headed ONGC and you yourself said IOC, HPCL, BPCL have fantastic network, fantastic distribution, they are the largest players when we talk about fuel retail. Are they not in serious violation of competition laws of being anti-consumer – three companies exact same pricing for petrol and diesel, all three companies making the same margin or losing the same amount per litre when you talk about petrol and diesel, are they not in violation of competition laws?

Sharma: No. I very strongly believe it is not so. Ultimately the government what they have been trying to do is keeping the consumer interest in view. So all this volatility in crude prices they have been somehow absorbed in the system so that the consumer is not exposed to the volatility. When the prices steeply went up they were protected. When the prices are steeply falling they are not getting everything in, so system is absorbing the volatility. I do not think that is any monopolistic or any undue advantage. These companies have been trying to maintain stability in the system at least.

Surabhi: Let me shift this debate entirely and talk about it from the shareholders perspective. Now I am talking from the perspective of an OMC shareholder, when crude prices go up obviously there is a huge red line that the shareholder is left with looking at the P&L statement and when crude prices go down there is some comfort and cushioning coming in but the shareholder cannot be assured of how much benefit the company is actually getting because there is tinkering of taxes. Forget prices moving up and down with the price of crude now taxation is moving up and down with the price of crude. What are we really talking about here and this is a time when there is still no clarity on the subsidy sharing formula for ONGC a company for which the government wants to come out with FPO. So, what sort of policy are we talking about here?

Parikh: I agree with you that the government should have clarity on its policy. We used to have 7.5 percent excise duty on crude and that was brought down virtually to less than 2 percent. Gradually certainly the government has some reason to put the duty back to what it used to be earlier. Yes the shareholders of ONGC and others have some concern about it but from the largest point of view to countries economy and government finances I think what the government is doing is in my opinion quite justifiable.