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Privatisation proposed to ease fuel supply

Studies carried out to suggest ways to ensure smooth supply of petroleum products insist there is no alternative to privatisation.

The Action Plan on Petroleum Products Deregulation, 1994, was envisaged by economist Dr Bishwambher Pyakurel. It was followed by another study led by former Finance Secretary Bhanu Acharya in 2006.
At a time when the need for privatisation has been strongly felt, considering the huge losses of NOC, the Action Plan formulated by Dr Pyakurel proposes certain measures to create
a conducive environment for privatisation.
Chief among those are an automatic price adjustment mechanism (to make domestic prices on par with global market price), providing foreign currency to private importers, and letting private sector share the infrastructure with NOC.
But other concerns like fuel storage and subsidies also need to be taken into account before privatisation. It will be impossible for the private sector to sustain subsidies in diesel and kerosene.
The study hints at the possibility of contracting private oil companies in India, thereby ending
the monopoly of Indian Oil Corporation over fuel supply to Nepal.
Similarly, the issue of privatisation was the main concern of the Petroleum Product Supply and Market Management Study Committee-2006. Former Finance Secretary and convener of the committee Bhanu Prasad Acharya too is for the involvement of
private sector in oil business. However, his report suggests fundamental changes in the existing oil regime and NOC structure. Alternatively, NOC may be brought under a private management, allowing for greater involvement of private sector.
Acharya emphasises the need for a separate body to regulate oil business following NOC privatisation. The body will see to it that the industry is following established market practices, maintaining quality of products and services and adopting safety measures to handle these highly inflammable goods.
Acharya believes the private sector is capable of putting together required capital for imports, storage and other infrastructure. However, the government should allow private players to use the existing NOC infrastructure (the storage depots at Amlekhgunj and Thankot, for example). “There is no point in adding extra infrastructure when the existing ones will suffice,” Acharya says.
Deregulation of petroleum sector seems inevitable in light of the current fuel crisis. NOC claims that its cumulative losses have reached Rs 15 billion as a result of “subsidies”. There are also entrenched procedural flaws in NOC’s day-to-day functioning, which in turn have abetted adulteration and black marketing.
According to economist Dr Raghav Dhoj Pant, there is no rationale in subsidising LPG for the relatively well off.
As per Acharya’s report, NOC, with its incompetent and inefficient top-level managers, needs a complete overhaul prior to its privatisation.
Asked why the two reports were not implemented, Managing Director of NOC Digambar Jha said NOC had been unable to do so despite its best efforts. “But I am going to apprise the new minister (for Commerce and Supplies) of the suggestions made in past studies,” Jha added.
Acharya, for his part, sees political instability as a hindrance to privatisation of NOC. “The then government was scared of ramifications of price adjustments, a prerequisite for privatisation and other structural changes suggested in our report,” he said.

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