Put up dukes! One of the challenges put forth in the National Power Policy is the high cost of generating electricity. More than 44 percent of the total generation is skewed towards thermal sources and that too mostly the expensive furnace oil and high speed diesel (HSD) amid dwindling gas resources.
If one looks at the quantities, it is interesting that the last fiscal (FY13) continued to see stagnation in the expensive lot, furnace oil and high speed diesel, where the overall oil sales moved up by only two percent year-on-year.
Not only that, a significant slide in the import volumes of these petroleum products was also seen; eight percent in high sulphur furnace oil and 11 percent in HSD.
However, the reasons for this decline are not appealing; mounting circular debt chained economic activity and drained liquidity of the energy sector. This slow growth in oil sales is a five year tale when the economic activity started taking a U-turn and the vicious circular debt started building since FY09.
Similarly, slowing imports did not translate into any momentous relief in the import bill and 22 percent rise in petrol sales kept the balance. Also known as motor gasoline, the upsurge in petrol consumption is linked directly to the non-availability of CNG in the transportation sector.
What is in the making? The phasing out of the CNG in transport sector and the freeing up of liquidity is likely to activate oil sales in the current fiscal. Take out the circular debt phenomenon and you might be left with improved petroleum product off-take.
The market is hopeful that such steps will not only kick start economic growth but will also increase the country’s overall petroleum sales (and particularly of furnace oil and HSD) by six to eight percent in FY14.
Moreover, while fixing the power sector’s generation mix might take some time, the government is likely to continue with steps to increase power generation which will increase furnace oil consumption in the short term. In that case, a rebound in petroleum sales should come as no surprise.
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