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M. Ramesh

"My worry for the public sector is that real liberalisation has not happened. There is still an understanding with the government on prices. As long as this straightjacket remains, it will be difficult for the public sector."

MR K. N. Venkatasubramanian may be out of office — he retired as CMD of Indian Oil Corporation in 1996 — but remains a keen oil industry watcher. He was there at the helm when liberalisation of the oil sector was being discussed. And from outside the office, has seen those discussions take shape.

Now, as Chairman of the lube maker Gulf Oil Corporation of the Hinduja group, Mr Venkatasubramanian also has a professional interest in keeping in touch with the oil industry. Mr Venkatasubramanian, 67, shares here with Business Line his ring-side observations of the happenings in the oil industry.

Excerpts from the interview:

Your view on the changes that have taken place in the oil sector...

First of all I am envious of the freedom that oil companies enjoy. I only wish I was younger and still employed, because the degrees of freedom in terms of capital investment, technology acquisition, manpower recruitment, putting retail outlets is far greater than what we had.

A lot of good things have happened in the oil industry in the last 10 years. The only shadow is that the indigenous crude production has not kept pace with the requirement. Indian crude production should increase, either by new finds here or by acquiring oil fields abroad. The greatest thing that has happened is the concept of transportation of crude by pipelines. It was a short-sighted policy (to move oil by rail). It is safest to move by pipelines, also it does not require organisational effort like managing rolling stock and can be monitored better. Therefore, acceptance of pipelines is a welcome feature.

The other development is that there is a greater choice in where to import crude at. Those days you could bring crude only to Kandla. Considering our overdependence on imported crude, we depend much on infrastructure in the ports. Now private ports have come.

The third development is the deregulation in marketing. Those days there was a `oil marketing plan,' which decided which company will get how many pumps and where. First, they delicensed refineries. Then they said if you invest Rs 2,000 crore you are eligible to get a marketing licence.

In the next five years the face of marketing will change. When private sector starts marketing, the public will get good service and quality products at competitive prices. Once you put up a refinery you will make products both that you require and do not. Also you cannot have infinite storage — evacuation is most important. You have to get the products out. You cannot turn off a refinery. For example, Reliance has a 500,000 bpd refinery. If they don't evacuate for two days, their tanks will overflow. That will be the pressure with which the customer will benefit.

How do you see the public sector faring in this competition?

PSUs are leaps and bounds ahead. It is easy to set up a refinery, but difficult to set up a marketing network. It will take time for the private sector to catch up. But my worry for the public sector is that real liberalisation has not happened. There is still an understanding with the government on prices. As long as this straightjacket remains, it will be difficult for the public sector. But I believe that once the private sector companies start retailing their products, the public sector companies will also be free to sell at their prices.

There is another problem, that of cost of transportation of the products. Will consumers in the hinterland have to pay more than those on the coast?

I think only common pricing will work. If there is differential pricing, there will be unhealthy practices.

How can a common pricing come about?

That is where the pipeline comes in...

But transportation by pipelines also has its own costs?

Yes, but these costs are fixed. Railway costs are not. With pipelines you can average the costs. That's the only way to do it. But ultimately I see a situation where the owner of the retail outlet will have the freedom to buy products from whichever source will give best prices. It has happened also here, but we don't say that.

What is your outlook on crude prices?

I think they will remain in $25 - 30 band. The present price of $35 is way out. They can't keep price at this levels, they will drive investment towards exploration.

There's a lot of competition. Crude prices will not be very high.

What do you think of the `Price Stabilisation Fund' as a means to check price fluctuations?

I doubt if it will work. If you have a strategic reserve, it will help stabilise prices.

I don't think anywhere price stabilisation fund is in vogue. Is there a price stabilisation fund for the cement industry?

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