For a Com­pet­i­tive, Ef­fi­cient Oil Sec­tor

The Economic Times - - Breaking Ideas Weak Fdi Flows -

Oil min­is­ter Dhar­men­dra Prad­han has clar­i­fied that the gov­ern­ment’s plan to merge state pe­tro­leum com­pa­nies will not lead to one gi­ant en­tity. This is most wel­come. We do need mul­ti­ple com­pa­nies in our large and fast-grow­ing oil econ­omy to gain­fully com­pete for cus­tom. And, in tan­dem, we need to gen­uinely open up the re­tail oil mar­ket. A large amor­phous en­tity would mask losses made in un­wise or capri­cious decisions such as do­mes­tic or for­eign ac­qui­si­tions that have no sound com­mer­cial ra­tio­nale.

The oil min­is­ter has also stressed that the Cen­tre’s role would be lim­ited to fram­ing pol­icy and fa­cil­i­tat­ing im­ple­men­ta­tion, and that there would be no at­tempt at mi­cro­manag­ing merger and ac­qui­si­tion in the oil sec­tor. This is also as­sur­ing. It makes per­fect sense to leave it to the board-man­aged com­pa­nies to seek syn­ergy and ex­plore their op­tions for M&A. There can be com­pet­i­tive ad­van­tage for com­pa­nies to have solid pres­ence across the value chain in oil, so as to bet­ter man­age risks in the high-risk up­stream seg­ment, op­ti­mise through­put in re­fin­ing and value-ad­di­tion, and seek brand value in the mar­ket­ing of oil prod­ucts. And they must face com­pe­ti­tion. The do­mes­tic oil ma­jors should have in­te­grated op­er­a­tions across the value chain. But, in par­al­lel, we need to pur­pose­fully lib­er­alise the mar­ket­ing of pe­tro­leum prod­ucts. It makes no sense to ring-fence the re­tail­ing of petro-prod­ucts only for oil con­cerns. Abroad, in the ma­ture mar­kets, stand-alone oil re­tail­ers ac­count for as much as half the off­take. As the third-largest oil mar­ket that is poised for huge vol­umes growth go­ing for­ward, we do need a pol­icy for in­de­pen­dent oil re­tail­ers posthaste, even as we put in place pol­icy for fully in­te­grated oil ma­jors here. In­te­gra­tion must not rev up monopoly rents in oil.

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