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India has become self-reliant in refining

Part I: 21st century is the century of gas

The next item which is of wide interest is refining. As of now, our refining capacity is 112 million metric tonnes per annum or MMTPA. In just the last year, we have added 42 MMPTA! India has now become self-reliant in refining.

Reliance Petroleum (capacity = 27 MMTPA) has a significant share of India's refining capacity. So government companies, private companies and joint ventures collectively make India self-sufficient in refining.

But keeping in mind the future, we are working at establishing some new refineries. In the month of May 2000, in Paradeep, Orissa, Prime Minister Vajpayee laid the foundation stone for 9 MMTPA refinery which would cost around Rs 100 billion.

Similarly, the foundation stone for the Hindustan Petroleum refinery in Bhatinda was laid quite early. But the work had not started because funds were not available. So as soon as we came into power, we made funds available.

In June 2000, we suggested that, since the foundation-stone laying ceremony was already done and work had not started, we should have a brick-laying ceremony! The idea is that the people of Punjab should be assured that something is happening.

In 1985, a foundation stone was laid by the then prime minister for a bridge across the mighty Brahmaputra in Assam. The 3-km-long bridge was to cost Rs 1.75 billion. The work started only in 1989. When Vajpayee became the prime minister in April 1999, I took him to inaugurate the bridge. So that has been the style of functioning till we came to power. We have tried to change that culture.

Refineries across India

The work for the Bhatinda refinery has started. Another refinery with 6 MMPTA capacity is to come up in Bina in Madhya Pradesh. Bharat Petroleum or BPCL has a joint venture with an Omanese company for that. But news reports say Oman wanted to withdraw because there were lots of delays due to environmental reasons.

When I became the minister, I tried to hasten the process and we got the environmental clearance. But Oman said that it want to associate itself with some other company. I requested them to reconsider their decision. I hope they would respond positively.

Let me assure you that if they agree, well and good. If not, then, as we have done for Indian Oil and Bharat Petroleum, we will make the necessary funds available and work on the 6 MMPTA refinery at Bina will start. So much about the three new refineries.

In Madras, the present refinery has 6.5 MMTPA capacity. We are increasing the capacity by 3 MMTPA. Likewise, we are expanding the Cochin refinery capacity from 9.5 MMTPA to 13.5 MMTPA. For refining capacity should keep rising to meet future demand.

Sometimes, this creates problems of surpluses because when we import crude oil in large quantities, we use it to produce kerosene, diesel, petrol, aviation fuel, so many products.

And the demand for these products is different in different areas. Since we try to take care of poor people, kerosene and LPG are utilised in large measure. But the production of diesel and petrol goes up at times, resulting in temporary surpluses.

Right now, there is a temporary surplus in petrol and diesel. Some of it is being exported. But what I want to impress upon you is that in the refining sector, India is now self-sufficient.

Rising fuel prices, subsidies and remedies

Let me dwell on rising prices and the policy decisions we have taken. When I say 'we', it is not only the government of the last two years that I am speaking about but earlier ones than that.

The present crude prices are highest in the last ten years. I mentioned that from $ 11 per barrel, the price rose to $ 36 per barrel this year. In 1997, the then government decided that they would reduce the subsidy on kerosene and LPG. But that decision was not implemented. It was not implemented till the Vajpayee-led government came into being.

New policy decisions were taken after ensuring that they are logical and not damaging to the economy. The administered price mechanism or APM will be over by the year 2002.

By then, the subsidy on kerosene will remain at 33 per cent and on LPG at 15 per cent. That subsidy will be given from the general budget. One keeps hearing about the imminent death of the oil pool account. But that subsidy will not be given as is being done now, from the oil pool account. It will be given from the general budget.

With this as the background, prices were adjusted thrice already. There is criticism against that; we are seized of the matter.

With the prices rising in the international market, we calculated that the oil pool account would have a deficit of Rs 236 billion by the end of this financial year. So recently we revised the prices on September 29.

For easy calculations, I will round off the above figure to Rs 240 billion. But what happened all these years was that as prices rose in the international market, the entire burden was passed on to the consumers.

We have made a substantial change to the traditional system. We decided that only one-third of Rs 240 billion would be passed on to the customers by way of increased charges. The rest would be adjusted by the government.

Of that two-thirds, we decided to reduce the import duty on crude oil from 15 per cent to ten per cent on petrol. The excise duty has been reduced from 32 per cent to 16 per cent, and on diesel from 16 per cent to 12 per cent.

This is the first time that the taxes have been simultaneously reduced. So Rs 50 billion will come from reduction in prices. In 1990, when the prices had gone down in the international market, the government had accumulated a total of Rs 45 billion. It is in a separate account. Actually, it belongs in a way to the petroleum ministry.

So we requested the finance ministry to return that money and the finance minister has agreed. And the remaining Rs 40-50 billion... we will try to cover through oil bonds or some other financial instruments.

I say some other financial instruments because some have the conception that bonds can only be for five years. Normally it is the case, but that does not mean we should not go in for two-year-tenure bonds. Two years because we will dismantle the APM in 2002. So we will have either bonds or some other financial instruments.

We arrived at this logic from two assumptions. One is that prices would not go beyond $ 30 per barrel. And when we took the decision, the dollar-rupee rate was $1 = Rs 46. Now the rupee has gone down and the prices have gone up. Now this change has meant an oil pool deficit of Rs 2.5 billion.

This means, Rs 2.5 billion per month, which will mean Rs 12.50 billion for five months. This will be in addition to the deficit which we had saved earlier.

Compulsions of a people's-rep-turned-minister

You must remember that I'm an elected representative of people. If I put pressure, the common man would not like it. Even my wife did not like it!

Let me explain. Once, after I was interviewed for a television programme, the interviewer wanted to quiz my wife about the cooking gas price-hike and how she would cope. She told the journalist: "I'm also a middle class lady. When the prices rise in the international market, one can't find fault with government. One has to carry on. I've decided to do two things.

"My husband normally doesn't come home for dinner by 8 pm. He returns home around 10 pm. So I used to re-heat the food for him. From now on, if he arrives after 10 pm, he will have to make do with the food on the dining table. Secondly, I've decided to offer lemonade to guests instead of coffee or tea."

I have narrated this incident because it illustrates how people adjust when there is no choice.

Pricing scenario is better in India

I have got the fuel prices in the neighboring countries of Nepal, Pakistan, Bangladesh and Sri Lanka. These countries are less developed than us, poorer than us.

After we increased the prices, kerosene in India costs Rs 8.35 per litre. In Pakistan, it is Rs 11.14 , almost 33 per cent more. In Bangladesh, it is Rs.13.13, or 57 per cent more.

Let us turn to LPG. In India, a cooking gas cylinder costs Rs 213. In Bangladesh, it is Rs 321, or 38 per cent more. In Sri Lanka, it is Rs 301, or 29 per cent. In Nepal, it is Rs 304, or 31 per cent more. We have to go with the world economy.

Ultimately, somebody will have to pay for this. So we have increased the prices. I think, by and large, people have accepted this. Otherwise they would have agitated as they have done in the past.

Mamata Banerjee has raised the issue and the prime minister is seized of it. Then she sent a five-page reminder. Prime Minister has asked for the comments of the finance minister and myself. We have given our comments. The PM will take the decision at an appropriate time. This is so far as prices are concerned.

Part III: India will invest Rs 60 billion in LNG

Money

Specials

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