Govt to review crude oil sourcing norms of PSUs

Richa Mishra Updated - August 03, 2014 at 09:59 PM.

Every dollar saved per barrel will shave almost $450 million from the import bill

Oil Petrol pump station

India, with an annual oil import bill of nearly $150 billion, would do anything to reduce this burden.

The Ministry of Petroleum and Natural Gas is now taking a step in this direction. After a gap of almost 13 years it is reviewing the norms for crude oil sourcing by public sector oil refiners.

According to industry estimates, by just correcting the existing sourcing norms, every dollar saved by the PSUs would shave almost $450 million from the import bill.

Constrained by Government norms, Indian Oil Corporation, Hindustan Petroleum Corporation and Bharat Petroleum Corporation end up buying crude oil at higher prices vis-à-vis their private sector counterparts.

PSU refiners are not allowed to negotiate with suppliers unlike their private sector counterparts. Neither can they procure distress cargo. They can buy their crude oil only from those multinational companies identified in the guidelines.

“The Government is working on amending the norms ... even if a dollar is saved it makes a huge difference to the country’s import bill,” said a senior Ministry official.

The three refining companies are expected to make a presentation to Petroleum Minister Dharmendra Pradhan in the coming weeks.

Almost 80 per cent of crude oil is imported through term contracts and the balance from spot tenders. “This does not allow companies any leeway on price negotiations,” an oil sector official said.

According to him, most term suppliers tie up contracts with various buyers. Internationally, spot crude sourcing is done over the counter through negotiations between the buyer and seller. “Oil PSUs follow the tendering process which may not always get them the best deal,” the official added.

The pricing of crude oil imported against term contracts is based on the seller’s official selling price. This is applicable to all term customers.

It remains to be seen what will happen after the presentations are made to the Minister. “Let’s face it, India is not China, where the Government ruthlessly pulls out all the stops to protect its companies and the world listens to these demands,” said a PSU oil executive.

The slow pace of oil discoveries in India is also contributing to the high import bill. This is where ONGC is expected to play a more aggressive role in future. It has been nearly four decades since a major find like Bombay High was made.

The Government is inclined to ask ONGC to focus on its core competence of exploration and give other plans (especially its downstream diversification) a break.

The import bill and subsequent subsidy support mechanism is causing havoc with refiners’ balance sheets. Ironically, cash-rich ONGC has been hurt the most since it ends up throwing a lifeline of over ₹10,000 crore each quarter to the refining trio.

(With inputs from Murali Gopalan)

Published on August 3, 2014 16:29