The government in Delhi is abuzz with activity. The issue of excitement is the rising world prices of oil. The corporate media is also at it- the same old story of the Left parties playing a spoilsport in this hour of apocalypse! The failure of the government to allow a hefty hike of petroleum products' price, particularly those like kerosene and cooking gas is being sought to be projected as the final nail in the coffin of the public sector oil companies which deal with oil marketing! Wonder of wonders! The pro- market, pro- privatization 'Rudalis' breast beating on the impending demise of PSUs! And as if truth is stranger than fiction- a section of the UPA government with inexplicable nonchalance seems to be falling for the bait.

        But they need not go to ideologically alien territory. A leaf could be taken from otherwise 'reliable' Capitol Hill and that too, straight to the recent hearing of the US Senate Committee on Judiciary held as recently as May 21 on "Exploring the Skyrocketing Price of Oil" wherein executives of the five largest US oil companies were grilled. Senator Patrick J.Leahy, Chairman of the committee observed- "Your companies ……. are profiting………We look at the past profits of the oil companies and what they're making on previously discovered oil ; oil that was very profitable for them at $55 to $65 a barrel is obviously making them windfall profits at $130 a barrel."

        Let mandarins of North Block and Petroleum Ministry be transported back to India. Oil and gas producing companies like M/s Cairns, Reliance, et al working to extract oil and gas through Production Sharing Contract had not anticipated crude oil prices beyond $30/ per barrel when they secured these contracts under NELP. The introduction of 'import parity' pricing after dismantling of administrative pricing mechanism under  the NDA, therefore, today enables the stand alone oil and gas extractors to make windfall profit. The US Senate committee has suggested windfall profit tax for such disproportionate gains. Will North Block follow suit?

        Same story plays out in refining. Here again the US experience can be 'relied upon'. Senator Richard Durbin speaking in the Senate on Apr.29, castigated high refining margins- "Because between the crude oil and the product you buy is a refinery…….that takes the crude and converts it into the product we purchase. The difference in cost between the original barrel of crude oil and the ultimate product has changed dramatically. Not that long ago, the difference in cost was $1 to $2 a gallon, in terms of the refining process. Now it is up over $40 a gallon."

 
        Here at home, the story is similar. Those very gentlemen who cry hoarse over the plight of Public Sector Oil Marketing Companies are actually allowing private refineries a margin of $15 per barrel, while oil PSUs are barely keeping their heads above the water.

        Apart from the private oil companies- both in the upstream and in refining there is yet another player in the 'oil business' which appears to be making windfall gains in the wake of skyrocketing of global oil prices. It is the government itself. Year on, as and how the global prices have gone up, the Government of India has benefited disproportionately from this price surge in terms of revenue mobilization. A government that provides with approximately 50% tax exemption of what it actually collects to coporates and others mobilize almost one thirds of its total revenue from the hydrocarbon sector.

        A restructuring of the tax structure in the petroleum structure can actually bring a great degree of relief both to the consumers, as well as, the OMCs. The reduction of customs duty on crude oil from 5% to nil can account for more than rupees 15000 crores this year. This could mean considerable relief. Similarly, reduction of excise duty on products and making it specific as opposed to ad valorem, which is what it is today, could also provide a healing touch. Together with this a Price Stabilization Fund could be created by setting apart certain amount from the huge accumulated fund accrued through the oil industry development cess. The present cess collected by the government from the crude oil produced by ONGC and Oil India at the rate of Rs2500 per MT amounts to more than Rs7500 crores per annum. This fund could insulate the OMCs and the consumers from the global oil shock.

        But North Block will have none of these. Consumers can go to hell. The cause of OMCs will be used as a ruse to perpetuate the 'windfall profit' of the private oil companies. Neither will there be any revisit on the question of tax exemption which could otherwise substitute the unsustainable levels of customs and excise duties.

        With prices of essential commodities, particularly food prices going through the roof, the writing on the wall is loud and clear. This is already turning out to be an electoral hara-kiri. The process had started with the elections in Punjab and Uttaranchal. It continues unabated. Price rise could eventually prove to be this government's Waterloo. So, never mind the Rudalis. A hefty hike of prices of petroleum products will be a definite disaster for the already threatened livelihood of the 'Aam Aadmi'. It should not be a difficult choice.