Interview / Ram Naik

'We won't take undue advantage of people's acceptance of fuel price-hike'

Soon after addressing the Indian Merchants' Chamber on 'Oil Scenario in the New Millennium: Issues and Perspectives' on November 14, India's Petroleum and Natural Gas Minister Ram Naik interacted with a group of media-persons and invitees that included rediff.com's Y Siva Sankar.

The minister outlined the government's thinking on the fuel price-hike of September, the complicated supply scenario at the global level and its implications for the Indian economy. Excerpts.

FUEL PRICE-HIKE

On whether the government would go in for a further price-hike because people have understood and accepted the hike in September:

We won't take undue advantage of the understanding and cooperation of the people. I feel the earlier system of overnight increase of prices was faulty. This time, the price hike was preceded by a one-and-a-half months' of explaining the facts to people. People have realised that there is no other option.

But because people are very understanding, we should not take advantage of their good mood and place some more burden on them. That would be betrayal of their understanding. It is not a proper thing to do.

On whether the government would roll back the latest price-hike if global crude prices ease early next year:

At the present level, we are working on the assumption that the average price per barrel is $ 30. If the prices ease at least to $ 22... even OPEC members had been talking of the $22-28 price-band... and as soon as this oil pool deficit is over -- we've a plan for this -- we will reduce the prices.

So there are two conditions to roll back the price-hike: 1) elimination of oil pool account and 2) stabilisation of global prices at $ 22 per barrel. Then there won't be further generation of oil pool account deficit.

On whether the government would utilise the consensus on the latest price-hike to do away with subsidies on the inputs side of petro-products' production:

Whatever we have decided uptil now, if we implement it, it will be an achievement. I have to take into confidence not only my party, my allies but also the Opposition. Just because the Opposition could not build an agitation, it does not mean I should not take them into confidence.

The winter session of Parliament will start on November 20. This issue will be debated there. Whatever I tell you here, I've to convince them (law-makers) also about it.

On whether the Indian government is in touch with the new secretary-general and president of OPEC:

I've personal contacts with all the OPEC members, including the new Secretary-General Rodriguez, because either I've gone to their countries or they have come to India.

We are requesting them that they should produce sufficiently and monitor or use their influence in such a way that at least developing countries get fuel at reduced prices. It is very difficult to sustain such high prices. It is having an adverse effect on our economy.

On how the government is gearing up for the post-2002 phase (when the administered price mechanism will be dismantled):

We are doing the necessary work well. The earlier government took a conscious decision to dismantle the APM by 2002.

When P V Narasimha Rao was the prime minister, a committee was appointed which deliberated on the issue. When Deve Gowda was prime minister, the committee submitted its report. Acting on that report, a decision was taken when I K Gujral was the prime minister. But it was not implemented.

We have started its implementation. Now we will try to ensure that the APM is dismantled by 2002. I've one-and-a-half years at my disposal. I'll try to complete it.

On whether the government has a long-term policy to tackle the frequent fuel price movements:

We have formulated India Hydrocarbon Vision 2025. Twenty-five years is a pretty long time. We have observed leakages. The traffic police is trying to improve vigilance.

On the stand-off with Mamata Banerjee who protested against the price-hike:

The report prepared by the group of ministers in response to Mamata Banerjee's memorandum is with the prime minister. It is true she submitted a five-page note. Usually, such notes are not long, but she chose to make it long.

In the last one month, the prices have soared instead of easing. Consequently, it has added Rs 2.5 billion to our bill per month. We have kept the PM informed about this.

The prime minister will take a final decision. He is right now having talks with his ministerial colleagues, the coalition partners and others.

On the recent spurt in crude prices in the global market:

Petroleum ministers of producing as well as consuming countries are coming together to deliberate that. Thereafter, we will take a decision. But we are not taking any decision for increasing the prices in India as of now.

Let the market stabilise. OPEC will be meeting to discuss their production and output levels. OPEC said it won't increase its output. But that was said prior to the forthcoming meetings. Their final decision remains to be seen.

On whether he is still against rollback of fuel price-hikes:

As of now, the prime minister is seized of the issue. If the decisions are taken only on economic considerations, then price-hikes cannot be rolled back.

But, as we have learnt in economics, it is said that the economic man is not available, because man does not work only on economics. There is society, there is politics, we are running a coalition government... now all these will be in the hands of the prime minister.

My views are known to him. He will take me into confidence. He is taking everyone into confidence. So this decision will be taken after taking into consideration the ground realities in which the government works.

If only economic consideration is to prevail, this is the position. But in running the government, only economic considerations are not taken into account. There are other equally important considerations. You want us to serve the people, no? (Laughs)

On fuel conservation and whether he would prevail upon Railway Minister Mamata Banerjee to go in for electrification of railway lines and phase out diesel-powered engines, instead of demanding rollback of fuel price-hike:

The idea is right but ultimately electricity is also expensive. Electrification is being done in stages.

Now electricity is being produced using gas as fuel. And those who are producing power using naphtha are saying, 'We also want gas'. Now gas is not available.

Maharashtra's present problems are because the MSEB plant at Uran did not go for double-fuel plant. They only have a gas-powered plant. Gas production has reduced due to problems at ONGC for the last eight to nine years.

I met with Maharashtra Chief Minister Vilasrao Deshmukh and informed him that we have allowed even diesel for power generation. So if the MSEB plant at Uran goes in for duel-fuel, it can be done.

PSUs AND DIVESTMENT

On the issue of divestment of government equity in public sector oil companies:

I need not touch the subject because some people have said that I am an opponent of divestment.

I've said this before and am repeating this clarification: oil is a strategic sector. It has importance from the government's defence point of view.

In the USA, they have stocks of three months as strategic stocks. We dry up in just eight or ten days. So from that angle, we must have strategic stocks. Also, taking the wars we have had with Pakistan into consideration, we should have more preference for government companies.

Of course, efficiency should be there in the public sector companies. Accordingly, these matters were discussed in detail and the government has decided that ONGC, GAIL and IOC -- these are the three different flagship companies in three different fields -- will remain with 51 per cent equity of the government.

About others, as I said, HPCL will have a new refinery. If I divest in HPCL, who will build that refinery? Or, similarly, Bharat Petroleum. Who will build the Bina refinery in Madhya Pradesh?

We have done one more important thing. There are four stand-alone refineries at Kochi, Madras, Bongaigaon and Numaligarh. They don't have marketing set-ups. So we have decided to have these as subsidiaries of Indian Oil and Bharat Petroleum so that the government will get its money back and use it for better purposes.

Comparitively, these oil companies are cash-rich. In the case of IBP, which has a network of 1,500 petrol pumps, we have decided to divest. The Cabinet has taken the decision; the necessary formalities are being completed by the department of divestment headed by Arun Shourie.

On the problems in divestment of government equity in IBP:

IBP had a unique problem. They have one subsidiary called Balmer Lawrie which works in four divisions for chemicals, leather, containers and travel agency. Balmer Lawrie has six subsidiaries. Out of those six, two are working in foreign countries.

Now we face the issue of valuing them. We took a decision to separate them and keep them with other oil companies. But we will divest our stake in IBP for sure. IBP has a market-share of about six per cent. We will sell it.

Not only private sector companies in India, even public sector oil companies and foreign companies can bid for IBP. The bidding process will start soon.

On whether it is better to divest from HPCL first, before IBP, in order to raise more money:

The government is not only for raising money. The government has to ensure oil security.

On the government's response to the suggestion that all oil companies should be allowed to import crude directly instead of sourcing it from Indian Oil Corporation:

We have already taken a decision to allow them to import. But they have to develop the expertise for that.

If they tell journalists that they have the expertise, the government won't take decisions based on that.

But to decide when to allow the oil companies to import crude directly, the Cabinet has to take a decision. The Cabinet ratification will take time because the proposal has to be circulated to various people for their opinion.

NEW PROJECTS AND POLICIES

On the number of oil blocks likely to be offered to companies for exploration under Phase II:

I can give you the range because the details are being worked out. The number of blocks would be from 25 to 35, somewhere in between.

The possibility of striking gas or oil in these blocks depends on how the exploration work is done. Unless you explore, you won't know it. But you can't rule out the possibility of finding gas and oil there. That's why these fields were identified. But how much gas and oil... will be known only when exploration is done.

On the three pilot projects launched to find out if sugarcane molasses can be converted into fuel as in Brazil:

This is being done at government cost. Alcohol would be produced by sugar factories. To some extent they will also have to invest because the purity of alcohol that is required is more.

But all other things would be done by the public sector oil companies. Some things have to be sorted out. The consumer has to accept this kind of fuel.

We will be trying for five per cent of blending of alcohol with petrol. For that, the present specifications pose no difficulty. But if we have to go to ten per cent or more than that -- Brazil has 20 or 22 per cent -- our vehicles will have to be required to be changed. That means, the automobile industry has to look into that.

And to change specifications, the government needs a minimum of four years. So we decided to start with a five per cent blend and eventually do it all over India.

Whatever additional sugarcane is available can be used but the final test of the pudding is that the alcohol which is available to the oil companies for blending, should be at such rate that it is cheaper than imported petrol. For, if it is costlier, nobody would buy it.

On the government's policy on liquefied natural gas (LNG):

After the draft preparation, it goes to the Cabinet. The Union Cabinet has to approve it for it to become a policy. I would say that 55 per cent of the work is over.

On the proposed piped supply of cooking gas to all of Bombay:

Earlier, some plans were there. But the plans as they stand now are like this : Mumbai Mahanagar Gas Limited's service seeks to span the area from Colaba in South Bombay to Dahisar in Northwestern Bombay, to Mulund and Trombay in Northeastern Bombay. This way it wants to cover the entire metropolis.

The only little change is, previously all new schemes used to start in South Bombay and then were introduced in suburbs. It's the other way round this time. So Colaba will get piped gas by 2003 as scheduled.

For Mulund, work will start. For the area from Worli to Mahim, work will start this month and get completed by April 2001.

INTERNATIONAL DEVELOPMENTS

On the government's thinking on neighbouring Bangladesh where huge gas reserves and costlier kerosene mark the local economy:

So far as kerosene is concerned, I agree with the perception that the commodity is being smuggled out from India. But to say that the entire stocks in India are being smuggled out is an exaggeration.

Yes, Bangladesh has lots of gas. All I would say is this issue would be addressed after the elections in Bangladesh.

On the reported foodgrains-for-fuel barter deal with Iraq:

This is basically because there are United Nations' sanctions that nobody should purchase anything from Iraq. If anything has to be purchased, it has to be done in exchange for food only.

So we are negotiating with the UN that we would like to have a deal with Iraq. Suggestions have been given. Hopefully, the result will come this month.

EXTERNAL LINKS:

India's Ministry of Petroleum and Natural Gas

OPEC

Statement by Ram Naik on revision of prices of LPG, kerosene

Biographical sketch of Ram Naik

Money

Interviews

Tell us what you think of this interview