The writing was on the wall. After the decline of petrol prices by Rs81.5/ltr to Rs74.5/ltr in June, petrol shortage was on the cards. Ministry of energy recommended to keep the price change on hold for 15 days; but ECC declined it. Oil and marketing companies are supposed to carry 20 days’ inventory at any given point; but they were running abnormally low on inventories. Now with current ex-refinery prices of petrol at about 50 percent of current crude, refineries are producing sub optimally and OMCs are not importing. Hence, the shortage.
One can safely say that all the parties are at fault. OMCs are not keeping requisite storage. They are accountable for this. Government knowing that shortage will take place based on the ground realities, still went on with the OGRA recommendation. The poor consumer is the loser in the process. In most pumps, only HOBC is available at Rs155-160 per ltr. Wasn’t the poor consumer better to pay Rs82/liter on petrol (RON92)? Had there been no decline in prices, there would have been no shortage.
The question is why ECC went on with OGRA prescription. The issue is not of taxes (that is a separate debate). The disagreement is on ex-refinery price. The OMCs and refineries were already making inventory losses. In anticipation of further decline in prices, the OMCs were not buying from refineries. The storage of refineries was peaking. Plus, they were making losses too. Subsequently, they reduced production. Currently, refineries are operating at 25-60 percent capacity.
With refineries’ falling capacity utilization, domestic oil and gas production is falling too. Had this being winters, there would have been gas shortage as well. The fall in production of oil and gas can take weeks, if not months to normalize. The other problem is that it will strain the petroleum import bill.
The ECC did not go with the Energy Ministry’s call due to fear of accountability, including public accountability. Had the refinery prices been higher, the media would have started saying that the government is in bed with oil mafia. The sugar mafia story is still fresh.
Some say that OMCs make inventory gains in days of prices going down, they should bear the loss in days of prices moving up. But the quantum is too high this time. The prices are set on PSO imports based on last month. But May imports were based on April prices due to delay in shipment. No sane business will operate in this condition; the companies may surrender their licenses instead of making huge losses.
Refineries are using this opportunity to play the mantra of being so called strategic asset. As on commercial basis, a few of them should die. OMCs are playing dirty by delaying imports and not picking from refineries. Now government owned PSO and PARCO would import in excess and the loss will be taken by their shareholders (mainly government i.e. taxpayers). Government should move towards degranulation and fix prices fortnightly till the deregulation takes place. There is no easy solution to this mess.