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ONGC seeks upward revision in crude prices

Balaji C. Mouli

New Delhi , March 28

OIL and Natural Gas Corporation (ONGC) has sought upward revision in the price of domestic crude sold to the public sector refiners during fiscal 2004-05.

Currently, the pricing formula benchmarks ONGC's Bombay High crude to Bonny Light, a Nigerian crude. It also allows for equitable sharing of benefits, such as notional transportation cost, as well as costs, such as state taxes, since the product is not imported. This arrangement is valid for the period April 1, 2002 to April 1, 2004.

The Ministry, on its part, has finalised two options in regard to allocation of ONGC's crude to the public sector refiners. Broadly, both the options seek to lock the volumes to be sold to the public sector refiners. This, in a sense, blunts ONGC's ability to renegotiate a price for its crude. "Once the volumes are fixed, there is little room for ONGC to renegotiate prices," an industry source told Business Line.

Recently, ONGC indicated to Indian Oil Corporation (IOC) that it was seeking the complete freight charges that would have been notionally incurred by IOC had the latter imported the crude. In reply, IOC had pointed out that there cannot be piece-meal solutions. While ONGC is seeking a premium on the back of its high quality `sweet' Bombay high crude, there is also the high sulphur `sour' crude that IOC purchases from ONGC's North Gujarat fields. In order to use this crude, IOC has made considerable investments in its refineries.

The Petroleum Ministry's options to allocate crude to the public sector refiners for fiscal 2004-05 are roughly on the same basis as that done during fiscal 2003-04. In option one, the Ministry has given ONGC the freedom to sell the incremental production (over last year's figure). For the base figure, the allocation is roughly the same except that Mangalore Refineries and Petrochemicals Ltd (MRPL), which is now a public sector undertaking following takeover by ONGC, gets a marginal allocation.

In the second option, the entire production is allocated to the public sector refiners with MRPL getting a significant allocation. The Ministry has reasoned that since the country imports around 70 per cent of its crude requirement, domestic crude is sold in a buyer's market, and therefore ONGC cannot sell its crude on an `open market' basis. It had earlier turned down a move by ONGC to bid out its crude production.

ONGC's crude production in 2002-03 crossed the 26-million-tonne mark, an increase of 1.3 million tonnes (or 5 per cent) over the production registered in 2001-02. The increase came mainly from ONGC's prime asset, the Mumbai High field, due to the re-development projects launched in 2001. IOC and Bharat Petroleum Corporation Ltd purchase around 10 million tonnes of crude each with the rest being sold to Hindustan Petroleum Corporation Ltd.

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