Centre frees up oil PSUs to choose firms for crude imports

In a bid to improve operational efficiency, the government on Wednesday gave freedom to public sector oil firms to have their own independent crude import policy based on their commercial requirements. State-owned firms like Indian Oil Corporation (IOC) have traditionally been allowed to source crude only from national companies of oil-producing nations. On May 21, 2001, the government permitted state refiners to buy oil from top 10 foreign firms.

It was long felt that the list of companies from whom the PSUs can buy crude on term contracts needs to be expanded to include global giants like Italy’s Eni and Russian companies. The Union Cabinet chaired by Prime Minister Narendra Modi at his meeting gave its approval to replace the existing policy by vesting the oil PSUs with the power to evolve their own policies, Union Minister Ravi Shankar Prasad said at a news briefing. “This will provide a more efficient, flexible and dynamic policy for crude procurement, eventually benefiting consumers,” he added, but did not elaborate. Oil PSUs “shall be empowered to evolve their own policies for import of crude oil, consistent with CVC guidelines and get them approved by the respective boards,” an official statement issued after the Cabinet meeting said.

This will increase operational and commercial flexibility of oil companies and enable them to adopt the most effective procurement practices for import of crude oil, it explained. The existing policy for import of crude oil was approved by the Cabinet in 1979. In 2001, the Cabinet cleared amendments to permit state refiners to buy crude oil from top 10 foreign firms. “While the current policy has ensured that collective energy needs of oil PSUs are consistently met over the years, the policy needs to evolve with the changing times,” the statement said. “With the changing geo-political environment, the crude oil import policy needs to be modified to bring it in tune with current needs.” The current policy for purchase of crude oil from the spot or current market has “certain limitations and restrictions” that limit the potential sources and methods of procurement, it said without elaborating. Till now, refiners were allowed to buy crude oil from 10 MNCs -- Exxon (which has merged with Mobil), Shell, BP, Elf (merged with Total Fina), texaco (merged with Chevron), South Korea’s SK, Chevron, USX of USA, Spain’s Repsol and Nippon Mitsubishi of Japan. In 2014, it was proposed to include suppliers from South Korea, Spain and Japan as well as Eni, Valero Energy, Russia’s Lukoil, Conoco Phillips, Occidental and Marathon on the list. But now, they can buy as per their own plan without any restrictions. Oil refiners buy crude oil from suppliers in the Middle East and elsewhere on term or fixed quantity contracts and through spot tenders. Term quantities are fixed at the beginning of the year and contracts are entered into.

State refiners together account for about 56 per cent of the nation’s refining capacity. Term contracts are on the basis of official selling price of a country.