Huge and monstrous

One of the reasons for the added buoyancy in consumer spending and even corporate profits, it is now clear from the statement made by petroleum minister Mani Shankar Aiyar, is the fact that, in 2004-05, the PSU oil companies absorbed around Rs 20,000 crore of losses that should rightfully have been passed on to the consumer in line with the global rise in oil prices.

In the current year, this figure is expected to double to around Rs 40,000 crore. So if the economy continues to hum, and inflation to purr, it is because of the huge sacrifice made by the oil PSUs—Indian oil companies have to be the only ones in the world to post losses at a time when rising oil prices have boosted profits the world over.

Humungous, or huge and monstrous, is the way Mr Aiyar chose to describe the situation in Parliament the other day. The issue, of course, is what the government plans to do about it.

While Mr Aiyar has in the past been guilty of making populist statements like he’s happier to see the oil companies hurting than seeing the consumer hurting, it is clear the situation cannot continue like this any more since the oil companies will soon run out of money to sustain this populism.

In any case, given the huge investments needed to produce/refine the oil required to fuel an economy that hopes to grow at around 7 per cent per annum, if not 8, it is clear that oil companies need to be making money in order to finance this. It is equally clear that if such losses are to continue to be inflicted upon the sector, even new private sector firms will be chary of making fresh investments of the magnitude required.

Of course what is really ironic is the method being worked out to solve the problem. Even if the government does decide to hike prices, it is clear that years of delay in putting together a system to automatically adjust local prices to global ones cannot be changed overnight—both the NDA and the UPA are guilty of going back on a Cabinet resolution to allow such automatic price calibration and oil companies have had to depend upon the mercies of Ram Naik earlier and now Mr Aiyar when it came to hiking prices.

One of the solutions being touted is to allow Indian Oil Corporation (IOC) to sell off the stakes it has in ONGC and Gail, worth around Rs 14,000 crore at today’s prices (IOC’s expected under-recoveries this year will be around Rs 19,500 crore).

While this is hardly a solution given that it was IOC’s own money that was used to buy these shares in the first place (these cross-holdings were done to raise funds for the disinvestment target), surely selling these shares in the market is nothing but backdoor disinvestment given that the total (direct plus indirect) government shareholding in both ONGC and GAIL will come down.

If the Left parties are willing to allow this to happen, and they will, since the alternative is to hike petroleum prices very steeply, then surely they can’t object to selling off Bhel shares since that money too is supposed to be used to provide some benefit to the country’s citizens.