Election-focussed govt won't hike diesel price: RS Sharma

Oil minister's announcement on lowering consumption is disappointing for the industry, says RS Sharma, former chairman of ONGC. The proposal of one-time diesel price hike is sensitive one and political compulsions must have taken over the economic decision, he said. But it will shatter the stability that was coming into this sector, he adds.

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If diesel price is not hiked as per expectation, upstream companies may be required to share a higher burden and there will be more pressure on the bottomlines of the downstream companies considering finance minister P Chidambaram said two days ago that he wants to maintain fiscal deficit at the original level. So the higher under recoveries burden will fall on these companies, says Sharma. Below is the verbatim transcript of RS Sharma's interview on CNBC-TV18 Q: The Minister’s focus is right now on lowering consumption, no one wants to take the bull by the horn, that one-time diesel price hike heading into the election years, it looks like the courage is being lacked over there? Are you disappointed by what has happened over the last two-three weeks?
A: Yes, I must say that I heard minister’s statement and as an industry veteran I am disappointed because we have seen that Veerappa Moily off late has been constantly talking of reforms coming in and better stability, better comfort for these oil public sector undertakings (PSUs) and I can understand the statement coming could be the political compulsion that having an overriding effect again on the economic agenda, but surely for the industry, it is not a very welcome announcement coming from the minister. Q: Focusing on the events which are lined up politically elections being the big one, do you then expect that maybe the monthly revisions that were something which was factored in on the diesel front might just not go through for lots of months and it might just be ad-hoc in nature?
A: I must say that your apprehension might come out to be true because I have been watching this situation for over a decade and we find that whenever there is an issue, any political sensitivity to any economic agenda always it is the political agenda that has an overriding effect over such decisions. So, that might happen but slowly that stability, which was coming into this sector probably will get hurt and as we see the elections are nearing, so any decision which is deemed to be unpleasant from the elections point of view, from the ruling government point of view, I am afraid those kind of reforms process may again take a backseat. Q: You advise a lot of investors in terms of some of these stocks, just looking at the year-to-date (YTD) performance, somehow it is ONGC which is holding out while the oil marketing companies (OMCs) have shed about 20-30 percent in the stock price, in terms of looking at the value in some of these stocks, would you recommend some of the investors to take a plunge in some of these stocks?
A: One thing I always maintained. Fundamentally these companies upstream, downstream, the Indian PSUs, are very strong. Their management systems if you look at their marketing and distribution network, they don’t let any shortage happen in any part of the country, every nook and corner maintaining the price stability at all parts, there is no uncertainty so these kind of performance by these companies just go unnoticed. I do believe investors give credit to these companies, that is why despite companies not making any margins, there is investor interest in these companies.
So per se, the management of oil PSUs especially I wouldn’t talk more of ONGC, I had been heading the company, the downstream companies, the managements have been very efficient. So I feel sad when I find that their share price is going down and the market cap is trading less than the book value of the assets these companies hold that is a bit unfortunate. Q: Just coming back to the lack of clarity now coming in on diesel price hikes, if in case the diesel price hikes do not pan out in the next couple of months as anticipated then what happens to the subsidy sharing formula, according to you what would be the burden coming in on the likes of the upstream companies such as ONGC?
A: The largest worry for any investor is the uncertainty. We find that uncertainty factor gets increased. So everybody starts risk evaluation of the assets, everybody starts taking more depressive view. So this uncertainty is never good. I wish even under this situation, still the elections are a bit away. The government is able to come out with some declaration, which has a better comfort about the uncertainty factor of these companies.
Just two days back, the finance minister said that they are determined to maintain the fiscal deficit to the original level. So where from these higher under-recoveries will be met? Nowhere else. So that means there is a great apprehension that upstream companies, the ONGC, Oil India, GAIL maybe required to share a higher burden and again more pressure on the bottomlines of these downstream companies.