A question mark on participation of Indian private oil companies in nation building ?

For a while now, I have had  a feeling that all is not quite right in the decision to entirely exterminate the Indian PSUs especially in strategic sectors like Oil & Gas. Amongst other reasons, is the fact that these edifices still made business sense and serve a distinct purpose for a developing country like India (Ibid).

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Private enterprises in India is known for  having an attitude of making a quick buck rather than looking at delivering long term value. Their money lending heritage make them excellent profiteers with the classic mindset of parta  where cost is primary not the value. On a lighter note, I take the liberty of quoting Anand Mahindraji’s Twitter reply to “Kitna deti Hai” for his  Electric Hyper car : – “Sir ji, electric hai..Shock deti hai! Netizens had gone  delirious at such a  humorous repartee but I wonder how much of it was tongue in cheek. After all, it’s rumoured that after having set up an Oil Refinery in India and failing to acquire IndianOil, the head of a private conglomerate had famously quipped:  “Currently its more profitable to run a Cycle Stand than run an Oil Refinery”.  It’s actually a reflection of a particular mindset. Despite alternatives and renewables Oil & Gas Sector in India continues to play a significant role, 2030 or 2035 deadlines, not with standing.

Most big Private Industrial Houses in India are deep into instant returns than a well thought out long term industrial powerhouse approach.

They seem to display a propensity of wheeling and dealing, ensuring profit at any cost and do not shy away from influencing the Government for policy shifts in their benefit. Think tanks, policy making bodies, bureaucrats with scant domain/ business knowledge and neo economists are bent on experimentation mostly without a Plan B and consequential responsibility. They all make for a heady combination whereas a slightly cautious approach would obviously be more prudent. That the results of a full-fledged invasion of private companies in the lives of Indian citizens  can become disastrous and in the long run detrimental to the economy of India has been brought out tellingly during past few weeks.  Citizens have seen how in trying  times of Corona & War the private businesses in the Oil & Gas sphere would rather cut and run than robustly face challenges. Paradoxically, the same Private Corporate Houses (of course they are citizens too) do not shy away from asking for  indulgence and hitherto  been getting  it too.

Oil & Gas experts know how difficult it is to maintain and service the intricate Supply Chain of Crude and Petroleum Products. Its well known that a country like India with vast and varied terrain needs specialized infrastructure which the Oil PSUs had meticulously set up which had  long gestation periods. The Private players who entered late in the game wished to skim the profitable Oil & Gas S&D market that too in the Urban Areas but were not willing to invest Capital in building the required  infrastructure so vital to the business. Infrastructure which would actually add to the national assets also. The private sector after setting up Refineries, minimum Storage Facilities and few Retail Outlets realized that for being a big player in the OIl & Gas industry and earn big profits they need to have a presence in all streams. Possessing solid S&D channels including the force multiplier of Crude & Product Pipelines was a necessity. After some initial efforts at co-operation with Oil PSUs  the clever refrain of level playing field was put in place. The Government decided to help the Enfant terrible with goodies like sharing of Oil PSU infrastructure, setting up JVs, making the law plaint through interventions of bodies like PNGRB etc. It’s a separate matter that if  the Private Sector players had set up their full supply chains they would have immediately put forth the first mover advantage principle or natural monopolies concept and protected their terrain. Actually it’s not the Oil PSUs which were monopolies as is often pronounced, it’s what the Private Oil Companies aspire to be. Once they achieve the same, the common citizen of India would be in for tougher times.

 Whatever is mentioned in precedence hereof can be illustrated by two recent instances which are fresh in peoples mind. The Indian private players in Oil & Gas sector paid back the munificence of the Government and Citizens of India in their own typical style.  When the Pradhan Mantri Ujjwala Yojana Scheme (PMUY) was  launched on 1st May 2016 in Ballia, Uttar Pradesh by Hon’ble Prime Minister of India, Shri. Narendra Modi ji, the Private Oil & Gas Companies did not participate in the nation building exercise reportedly stating that they were for business not charity. Under the scheme, 8 Crore LPG Connections were to be released to the deprived households by March 2020. The actual release helped in increasing the LPG coverage from 62% on 1st May 2016 to 99.8% as on 1st April 2021.

The FY 21-22 Union Budget made a provision for release of additional 1 Crore LPG connections with  special facility given to migrant families. The wonderful project  was undertaken by the Govt. of India and the Oil PSUs.  PMUY is cited as a one of its kind global exercise. But the Private Oil Companies never wanted to be part of this nation building exercise. The second instance is more sinister and portends of emblematic days if only Private Players were to stay in the Energy domain.  For about a month or so, Indian Consumers have had to run from one Petrol Bunker to another in State after State as the Retail Outlets (ROs), apart from those of IOCL, seem to have turned miraculously dry. As already pointed out S&D of Oil and Gas in India  is an intricate exercise where both Public and Private sector companies play a role. Dry outs came as a double whammy to most Indian consumers. They were already reeling under steep price hikes of POL due to Crude  touching record highs. Crude was selling at 120 US$ per barrel at one time; in the wake of Russia – Ukraine war. In Delhi, while Petrol was Costing Rs 86.30 and Diesel Rs 76.48 per liter  in January 2021, it shot upto Rs 100.21 and Rs 91.47 in March 2022. Today (03.07.2022) due to several steps taken by the Govt. the prices are Rs. 96.72 and  Rs. 89.62 respectively. Certainly these are not the actual market prices and result is under recoveries if sold at these rates

The Government in order to check  price volatility brought in the pricing bands to  mitigate the sufferings of the common man. But true to tradition, the Private Players  always on lookout for higher and higher profits restricted the supplies/sales within the country. Instead they chose to export these essential commodities (which incidentally are under the ESA) reportedly to countries like USA and China thereby earning phenomenal profits. Due to this lack of concern for Indian consumers, the Government of India had to invoke the provisions of USO (Universal Service Obligation) during June 2022 to ensure market discipline. Private fuel retail operators like Reliance, BP, Shell, and Rosneft-backed Nayara were required to maintain supplies at reasonable prices at all their pumps. OSO has provisions for encashment of Bank Guarantees if there is beach of Market Discipline and repeated offences can lead to cancellation of license for fuel retailing. In fact, one must admire the Government of India for speedy and efficacious decisions in the Oil & Gas sphere during current trying times. Despite US & Europe Sanctions against Russia  it decided to import cheaper Crude from Russia so much so that from being a marginal supplier, Russia displaced Iraq as the largest provider of Crude to India.  All this the Govt. of India did for easing the burden of its citizens. On the other hand, the good efforts of the Government were dented by the Indian Private Oil & Gas companies who were solely on the lookout for opportunistic gains. While they were delighted to avail  the opportunity of importing cheaper crude from Russia essentially under the sovereignly mandated disposition they had their eyes solely on the humongous profit opportunity it brought them.

The Indian Economy, Market , Customers were not of concern to them. Reportedly, RIL and Nayara accounted for a combined 69% of Russian Oil shipments to India. What Govt. of India had obtained with great difficulty facing enormous geopolitical and diplomatic barriers for its citizenry was conveniently channeled into making huge profits by Private Oil Companies. Of course, it can all be written off as deft business praxis. Double standards can often be bereft of parentage. Most times morals, value systems and ethical standards are for expansive lectures and media expostulations. There are limits to which businesses can be allowed to go and taking the nation for a ride is certainly not one of them. Matters came to such a pass that the Govt. of  India had to take stricter measures. It became a member of a small comity of nations which introduced windfall taxes and Oil & Gas sector was the  proud recipient. So much so for transparency and business ethics.

The government essentially announced a Rs 6 per litre tax on the export of petrol and jet fuel  and Rs 13 per litre on the export of diesel wef from July 1; also Rs 23,250 per tonne tax was levied on domestically produced crude oil. It is reported that these taxes may fetch about Rs 72,000 Crore which could help in recovering 85% of  revenue lost from reducing excise duty on petrol and diesel. On 23.5.2022 the Government had reduced  excise duty on petrol by Rs 8 per litre and diesel by Rs 6 per litre to control inflation. The Finance Minister said,  “We don’t grudge people earning profits”. ” But if Oil is not being available (at petrol pumps) and they are being exported… exported with such phenomenal profits. We need at least some of it for our own citizens and that is why we have taken this twin-pronged approach.” Readers can fathom why Government of India was constrained to introduce it. Well many would say it’s a mere slap on the wrist since the windfall profits have been booked already. But if a greater lesson has been learnt  on whom one can repose trust an Oil PSU or Pvt. Oil Company  then it’s still worth it. 

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Apart from some ‘tough love’ leanings, the moral  of the story seems to be –  A friend in need is no friend of mine. The saga  of Oil & gas in India is full of twists and turns and has all the markings of a modern potboiler. From pre independence era when the seven sisters ruled the roost, modest beginnings of Oil PSUs in Sixties, ” Reforms” advised in 1995, setting up of Jamnagar Refinery in 1999 and proposal for privatization of Oil PSUs in 2002,  the clock seems to have turned a full circle. However,  the recent failure of BPCL Sale, keeping on hold the Monetization of Oil PSUs assets seems  to suggest there is some divine prescience at work. Recent events involving the Private Oil & Gas Companies and the predicament of the common consumer and even the Government have showcased the need for not only continuing with Oil PSUs but having a complete ‘Re-Think’ on their essential strategic, economic and continual need. Oil PSUs have always been an all weather friend of the citizens, consumers and the Government. Even abroad it has an excellent rating and confidence. Since India is still dependent  to a large extent on foreign energy sources it’s only prudent to hold on to the Oil PSUs which are profitable, dependable and a force multiplier in emergencies. It’s high time the Government, NITI Ayog, DIPAM and other bodies  seriously seek out efficacious routes to Energy Security of India. There is no harm in taking heed to an old saying – Don’t ever take a fence down until you know why it was put up…(Sidhartha Mukherjee)

If it rains in Britain do we need to put up Umbrellas in India ?

Lot ought not assail Indian PSUs !