Millennium Post

Economy on slippery slope

The Union Minister  of Petroleum and Natural Gas Veerappa Moily has set the fox among the chicken-coop by proposing a slew of ‘austerity measures’ as part of demand management of energy that includes shutting the petrol pump at nights. Predictably the proposal was greeted with stiff resentment as it smacks of fuel curfew when the citizens had lost the habit of standing in the queue for procuring essential things after the economy was liberalised and globalised in the 1990s. But though the minister recanted any such move when met with a fusillade of flaks, the need for going in for unpleasant options is nowhere more urgent than today when the crude oil prices is surging in the wake of the imminent US-threatened strike at Syria.       

But the fact cannot be pushed under the carpet that the widening current account deficit mostly contributed by the country’s abject dependence on imported crude oil has now begun to bite the people at large as the imported input cost for the transportation of men and material across the country has become excruciatingly dear. After the incipient euphoria generated by the Bombay High discovery in the 1970s, it is rather a telling commentary on the management of the energy economy by successive governments that they had miserably failed to either go in for commercial exploration and exploitation on oil-bearing basins, both onshore and offshore by offering attractive terms to the high-risk enterprise, or curtail the burgeoning consumption of oil and petroleum products to a manageable extent in the intervening years.

Even the dismantling of the administered pricing mechanism (APM) by the NDA government before it demitted office in 2004 was a wash-out affair in so far as both the NDA and the UPA refused to bite the bullet by sticking to micro-manage the price of crude through administrative fiat than let the market forces determine the cost in consonance with demand-supply equations. The ostensible reason trotted out was to protect the vulnerable sections that encompassed even the emerging middle-class, the rich and the pampered from periodic flare-up in global crude prices. This was done by simply shifting the burden on upstream national oil companies to bear the under-recovery of the oil marketing companies. 

The fuel subsidy has become a big travesty and it put paid to any conscious energy conservation measures by all sections with the government ever willing to take the tab under the alibi that the poor must perforce be insulated against hike in energy cost that would render their dreary daily existence further dismal!  For instance, total under-recovery to public sector oil marketing companies (OMCs) on sale of diesel by agriculture and non-agriculture estimated at 12.89 per cent and 87.11 per cent respectively, was Rs 92,061 crore during 2012-2013, despite the highly-polluting nature of this fuel and its associated cost to the people in terms of breathing the noxious smokes belched by diesel on the air.

Even the oil cess collected from upstream oil companies such as ONGC, OIL and the GAIL as also from a few private players seldom was ploughed back into further investments in expansion or modernisation of drilling technology for secondary recovery from the known fields. It may be noted that Oil Industry Development (OID) cess is slapped on crude oil produced domestically as a duty of excise under the Oil Industries (Development) Act, 1974. Oil cess on crude oil panned out from national blocks, Pre-National Exploration Licencing Policy exploratory blocks and
Pre-NELP onshore discovered fields is payable to the central government on monthly basis at a specific rate (presently Rs 4500 per metric tonne effective from 17 March 2012), on the quantity received in the refineries.  In the recent three years, the cess yielded was Rs 6637 crore in 2009-2010, Rs 7671.44 crore in 2010-2011 and Rs 8065.46 crore in 2011-2012.  In the earlier periods too when the cess was collected, the amount seldom went into  upstream companies for further exploration as had been highlighted by various Parliamentary Committees in their reports.  Still, the minister of state for Petroleum and Natural Gas Pranbaaka Lakshmi said in the Lok Saba in a written response on March 22 2013 contended that in terms of Section 16 of OIDA Act, this is only an enabling provision and conceded that the Centre has not transferred any funds to Oil Industry Development Board from out of cess proceeds for the years 2009 to 2012. If the government remained stubborn in not parting a portion of the massive cess amount to further invest in oilfields, how else production could go up any incrementally?

The fact of the matter is that as the cess is first credited to Consolidated Fund of India, it gets merged with the big pool and sucked with other revenue expenditures including subsidies and other welfare measures of the state.

Unless the authorities refrain from misusing this fund in this fashion, the domestic oil-bearing production fields would remain starved of funds with the country’s dependence on imported crude unrelenting and inexorably costly, energy policy analysts assert.
The portents to the economy which is already in a slow-speed mode are ominous to contemplate unless political parties desisted from playing politics and recognised the economics of conservation and cost recovery for energy being consumed across the country.
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