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High prices to delay India oil decontrol plan

High global crude and oil products prices could derail India's plans to fully decontrol its oil sector before April 1, 2002, officials and analysts said on Friday.

"Discontinuing the administered pricing mechanism (APM) depends on global prices. If they continue to rule at current levels, then we will need time beyond March 2002 to decontrol the sector," said an official of the Oil Co-ordination Committee.

The OCC, which plans and monitors the sector, is engaged in a government exercise to examine if the sector could be opened up ahead of the deadline approved by the Indian cabinet in 1997.

Private and multinational firms are awaiting decontrol of the downstream market which would allow them to sell transport fuels like diesel, petrol and aviation fuel directly to consumers.

Last year, Petroleum Minister Ram Naik said his thrust would be to deregulate markets as soon as initial reforms had yielded good results.

But on Thursday, Naik told Parliament that complete deregulation of the petroleum sector was 'targeted' from April 1, 2002.

"Marketing rights will be granted after the APM is dismantled," he told the Lower House in a written reply.

Naik said Reliance Petroleum Ltd, Essar Oil Ltd and Mangalore Refinery and Petrochemicals Ltd had sought grant of marketing rights for transport fuels.

Delay beyond March 2002

India fixes ex-refinery prices of controlled products on parity with international prices, but consumer prices of five products are fixed by the government.

It subsidises the poor man's fuel, kerosene, and liquefied petroleum gas, used by the middle-class for cooking. The current subsidy on kerosene is Rs 7.87 per litre and on cooking gas Rs 152.31 per 14-kg cylinder.

It also fixes the prices of petrol, aviation fuel and diesel. Petrol and aviation fuel are priced higher to partly fund the subsidies. The subsidies have resulted in a deficit in the oil pool account estimated to touch Rs 126 billion ($2.69 billion) at the end of the fiscal year through March 2001.

The OCC official said the remaining 16 months were not enough to wipe out the deficit.

"To wipe out the deficit, either there has to be hefty price hike or the global price has to come down drastically. Neither seems likely."

Another problem area would be the funding of subsidies on LPG and kerosene from the Union Budget instead of from the oil pool account, said an analyst.

"The finance ministry would be unwilling to take the subsidy burden on its fiscal deficit considering the high global prices," said the analyst with a European investment bank.

The 1997 decision said the federal budget would have to subsidise up to 15 per cent of the import-parity price of LPG and 33 per cent of kerosene price starting April 2002.

"I also see a resistance (by finance ministry) to lower customs duties on crude oil and products to international levels," said the analyst.

Finance Minister Yashwant Sinha recently turned down Naik's request for abolishing duties on kerosene and LPG to offset a partial rollback on their prices.

The additional burden of Rs 6 billion because of the rollback got added to the oil pool account.

An official with IBP and Co said the decontrol was unlikely to happen even after March 2002. "Aviation fuel, which was to be decontrolled in the current fiscal 2000-01, has not been done yet," he said.

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