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New crude oil import policy for OMCs’ spot buys soon: Pradhan

The oil ministry will soon come up with a Cabinet note on new crude import policy for spot crude purchases by state-owned refiners, doing away with the long-followed tendering process, Minister Dharmendra Pradhan said here on Monday. He said that the new crude import policy will enable the state-run oil refiners to have a common procurement system which will help get better prices, which in turn will bring down cost for end-consumers.

“Soon, we will be moving a Cabinet note on crude import policy,” Pradhan told reporters on the sidelines of the ongoing week-long manufacturing summit under ‘Make in India’. Observing that spot purchase can help consumer massively, he said the mechanism would involve streamlining the technologies to bring in more transparency.

“In the name of vigilance, our consumers should not be deprived of cheap oil,” the minister added. Asked whether this will also mandate a common trading platform for state-run oil refiners, he said it is up to them to decide how to do their procurement.

“The proposed trading desk can be set up by all state-owned refiners together or they can choose their own system, and the ministry will give the broad policy. According to my information, we are the only country in the world opting for tendering, despite being the third largest consumer (of) oil. 

The government will come up with a new policy very soon. Broad policy guidelines...how smartly they procure is up to the companies,” Pradhan said.

The issue of a spot procurement policy has been pending for long since the early days of the UPA, and if implemented will give the state-owned refiners the flexibility to negotiate and take advantage of prevailing low price. Under the prevailing tendering route, companies normally pay higher prices and incur delays as they book nearly three months in advance.

Following the steep fall in global crude prices, the Oil Ministry has encouraged oil PSUs to up their spot buys to take advantage of the market conditions. Following this, the PSUs stepped up spot purchases which used to be normally 20 per cent of their total requirement to up to 30 per cent.

Pradhan has been vocal in calling for an Asian discount against the Asian premium forced on the country and other nations in the continent by Opec. 

The Asian premium refers to the higher prices to the tune of USD 2-3 a barrel which the Brent basket (which sets the Asian prices) charge, over the Nymex (American prices) basket. 

Pradhan, however, said he was not advocating a trading desk per se, but is all for better inventory management that helps reduce unnecessary losses from procuring crude months in advance.

Currently, oil firms have a centralised procurement system, which requires them to take permission from the ministry on a periodic basis to go ahead with crude purchase. 

Normally, companies take almost three months to start processing crude after concluding the tendering process.

For instance, if IOC closes a tender for May loading then the tender would be concluded in March and it can begin processing only early June. Given the way crude is moving down now, there is no way how the companies that follow tendering route can avoid inventory losses at all. 

But, if they adopt spot purchase they can get better prices and faster delivery too, said industry officials.

When contacted, B K Namdeo, BPCL director for refineries, said this is the best time to have a common crude trading platform. “Ideally, it should have been in place already. We hope if the Cabinet approval comes in shorty, the platform can be operationalised from April quarter itself,” Namdeo told PTI.
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