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BPCL Selloff Facing Uncertainty? Conflicting Signals
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National Monetisation Pipeline Project Kicks Off
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Companies
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HMEL to Start Bathinda Cracker By March 2022
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Press Release [FREE Access]
Petro Intelligence Ľ Effective Regulator Needed Before Privatising BPCL

By R. Sasankan

Journalists ask a lot of tiresome questions in their quest for information. But their role in society is best served when they provoke debate - and a volley of questions from their readers who want these answered in the belief that the humble messenger must possess all the information. The truth is we do not: journalists are merely doors of access to the myriad repositories of information.

A recent article in this column, titled BPCL Selloff: Foreign Equity Players May Be Fronting For The Big Boys, bristled with speculation about behind-the-scenes machinations. There is no confirmation as yet that either Aramco or Rosneft of Russia is in the race for BPCL. This is an assumption that is gaining popularity within informed industry circles. On present reckoning, it is a hunch that is possibly not too wide of the mark.

But I was taken aback by some of the questions I received in response. No one asked me to positively identify the oil companies that were concealed behind the web of intrigue; rather, they wanted me to amplify on a curious quote in the article that had been attributed to an eminent energy expert.

"Aramco", the expert had said, "could make a killing as it has access to surplus and cheap petroleum products, relative to Indian producers, and could undercut them if it decides to capture market share.”

Most readers wanted to know how this was possible given the state of regulation of the petroleum industry in this country. Let me sum up the questions that the article triggered:

How can Aramco undercut other players in retailing? In countries like the US, where the regulatory system is effective, do pumps compete by offering varying prices? If Aramco enters India, can it sell petrol or diesel at a rate lower than what is being offered by IOC, RIL or HPCL?

Fortunately, the energy expert I had quoted has considerable experience about the manner in which the petroleum markets in the US and Europe work. In fact, he lived in the US for a few years. So, the short answer to the second question is yes, prices differ among retail pumps even within the same neighbourhood. The variations are usually marginal but in some cases, it can be as great as 20 per cent. A 10 per cent difference in quite common. The same is true in the case of Europe.

Can this happen in India?

This is a loaded question - and meant for the petroleum regulator who often finds himself hemmed in by the straitjacket of political expedience.

This also takes me to the tendency of the people who matter in this country to spout words that indicate noble intent but do not use it in the sense that is commonly understood by the people. Such dissembling, mealy-mouthed talk suits their purpose very well: they can wriggle out of any promise without batting an eyelid.

When the government decided to put BPCL on the block, then petroleum minister Dharmendra Pradhan said the intent was to introduce "competition" in the downstream market. He made it abundantly clear that the government was keen to see an oil major acquire BPCL. The raging pandemic put paid to those plans. The government's compulsions to raise money to increase its parlous coffers meant that the BPCL selloff had to go ahead.

Competition has been a very abused term in India. No one quite knows what it means - least of all the petroleum ministry and the industry regulator. This is something that I have written extensively about in an earlier article. The entry of the private sector was supposed to inject "competition" in the markets - at least in a limited manner. But it never happened. RIL and Nayara, the Rosneft subsidiary, are significant players in petroleum retailing. But they have brought no difference to the consumer - not even in the quality of fuel.

So, the readers of my recent article are right in raising their questions. Only, I do not have those answers because there are larger questions that the government and the petroleum regulator - which acts as its hand maiden when it was supposed to act independently - must answer. How can competition be injected? Will the existing regulatory regime allow competition in petroleum retailing? Will the government allow the import of auto fuels when India has surplus refining capacity?

Let us imagine that Aramco somehow manages to sell petrol and diesel at a price that is 5 per cent lower than that charged by state-owned retailers. Will the government permit them to match those prices?

This brings me to the point that I am labouring to make through this article: now more than ever: India needs a strong-willed petroleum regulator that is prepared to take independent decisions. And this institution must be put in place before the BPCL selloff. Otherwise, we run the risk of turning the exercise into another charade that can bring no change in the existing structure. The quest for competition in the sector - however amorphous its meaning may be - will remain a futile dream.

The Government of India is peddling a much-overhyped - but essentially trite - message through the BPCL selloff. It continues to labour under the mistaken impression that the inclusion of an international oil major in the Indian hydrocarbon sector will immediately introduce competition. The trouble is that the people who shape the country's policy are looking for a "magic bullet" to the solve the riddle. But magic bullets do not deliver desirable outcomes by themselves.

It is true that you must have multiple players - domestic and foreign - to create a competitive hydrocarbon sector. Unfortunately, that is a necessary but not a sufficient condition in itself to ignite competition.

A genuinely competitive hydrocarbon sector will emerge when an informed regulatory regime: (a) incorporates the basic provisions to encourage such competition transparently on a level playing field; (b) sets the rules under which the multiple players, active in the sector, will compete; and (c) addresses market imperfections or deliberate misuse and/or violations of the rules that give an unfair advantage to one or more players.

The government which is keen to bring about competition in the downstream sector through privatization of BPCL must lay down a well-defined set of rules that applies evenly to all players. Here is a laundry list of measures that the new regulatory regime must incorporate:

  • Grant the licensed marketing companies the freedom to produce or procure products from domestic or foreign sources with minimal distortions by way of duties/levies/taxes and/or non-tariff barriers such as permitting and licensing requirements that effectively limit competition;
  • Permit product/service differentiation to give consumers a genuine choice;
  • Allow freedom of pricing products and services;
  • Grant freedom and minimize hurdles in opening or closing outlets and/or establishing the required transportation and storage infrastructure on a captive or a common carrier basis;
  • Ensure freedom to buy, sell or share the marketing infrastructure referred under (iv) above;
  • Establish minimum product specifications and service obligations; and
  • Establish clear anti-trust provisions that preclude the creation of monopolies or concentration of market power.

This is by no means an exhaustive list and one can go into specific provisions of the prevailing regulatory framework that limit genuine competition in the downstream sector.

This is a recipe for a root-and-branch reform in the petroleum sector and it looks difficult to bring about in the near future. The government is still wrestling with the various issues thrown up by the decision to privatize BPCL. There is no certainty that the selloff will happen as has been planned. The government itself may treat this as an exploratory exercise. BPCL now has a CMD and a functioning board of directors. Let us not forget that the value of BPCL goes way beyond its market capitalisation or book value.



To download the latest issue 'Volume 28 Issue 12 - September 25, 2021', click here
Petro Intelligence [FREE Access]
Hardeep Puri Needs To Put The House In Order
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Effective Regulator Needed Before Privatising BPCL
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BPCL Selloff: Foreign Equity Players May Be Fronting For The Big Boys
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When Competition Comes A Cropper
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Foreign Investment
TotalEnergies Adds To Renewable Portfolio In India
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Overseas Investment
Reliance Floats UAE Arm For Trading In Oil, Petro Products
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OVL-OIL Exploratory Drilling In Bangladesh
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Dorf Ketal Chemicals To Set Up Downstream Joint Venture In Saudi Arabia
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Gas Scene
Natural Gas Price Trends: Global And Domestic
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Dip In Capacity Utilisation of LNG Terminals
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Sector-Wise Consumption Of Natural Gas
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Domestic Natural Gas Scene in August 2021
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Sector-wise Consumption Of Natural Gas in July 2021
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Domestic Natural Gas Scene In July 2021
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Natural Gas Price Trends: Global And Domestic
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Sectoral Consumption of Natural Gas In June 2021
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Domestic Natural Gas Scene: June 2021
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Sector-Wise, Month-Wise Demand & Consumption of Natural Gas
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Growth In Import Dependency Of Natural Gas Halted
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Natural Gas Price: Global and Domestic
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Sector-Wise Consumption Of Natural Gas In May 2021
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Natural Gas Price Trends : Global And Domestic
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Sector-wise Consumption Of R-LNG, Domestic Gas Since FY 2018-19
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Data Section
Monthly Upstream Data
Monthly Downstream Data
Historical database
Data Archives
Special Database
Global Rig Count Up
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Consumption Of Petroleum Products Registers Impressive Growth In August
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Indian Crude Basket Price In September 2021
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Ethanol Blending Programme
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Product-wise Production and Consumption of Petroleum Products during Apr-Aug 2020 and Apr-Aug 2021
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Gross Refining Margins (GRM) of refineries
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Big Increase In Petroleum Products Import, Marginal Rise In Export In August
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Crude Oil Import Up In August, OPECís Share Declines
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Percentage share of Domestic / Imported Crude Oil processed in PSU/JV and Private Refineries
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Quantity And Value Of Indian Crude Oil Imports (FY 2017-18 to FY 2020-21)
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Specific Energy Consumption Of PSU Refineries
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Weightage of crude oil, natural gas and petroleum products in Wholesale Price Index (WPI)
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Share Of Imported Crude Drops In Oil Processing
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High Sulphur & Low Sulphur crude oil processing
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Profit After Tax (PAT) Of Oil Companies
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Indiaís Rig Count Marginally Up In July
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The Rise And Fall Of Indiaís Petroleum Products Export
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Global Oil Demand Is Poised To Rise
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Global Rig Count Up
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Tenders [FREE Access]
ONGC
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