Govt mulling premium on petrol, diesel prices on BS-VI switchover
Consumers may feel the pinch of higher fuel prices in coming months as the government is considering a proposal to allow oil marketing companies charge a premium on retail prices of petrol and diesel to recover their investment in producing less polluting fuel. Public and private sector oil marketing companies (OMCs) have appealed to petroleum ministry to support a plan to raise consumer prices of auto fuels to help them recover a portion of investments made in upgrading their refineries to produce BS Stage-VI fuel. If this proposal is accepted by the government, retail prices of petrol and diesel would come at a premium of about Rs 0.80 a litre and Rs 1.50 a litre, respectively for the next five years much to the discomfort of consumers. Global oil market has largely remained flat for past several months due to slower demand. This has also resulted in retail prices of petrol and diesel being cut by OMCs on numerous occasions in past few weeks. But if a premium charge is allowed, retail fuel prices would not reflect global pricing trend but would remain artificially higher at all times. “Allowing increase in retail prices of petrol and diesel is one among several options that we have to cover for incremental investment made in upgrading our refineries. We have approached the petroleum ministry with a complete plan on cost recovery and awaiting a direction,” said a senior executive of a private sector refiner who asked not to be named. Refineries of public sector companies (Indian Oil, Hindustan Petroleum and Bharat Petroleum) have spent close to Rs 80,000 crore to reach BS-VI levels after rolling out BS-IV complaint fuel for national introduction in April 2017. Even private refiners, Nayara Energy (formerly Essar Oil) and Reliance Industries have spent heavily to upgrade their facilities ahead of nationwide launch of BS-VI compliant fuel from April 1, 2020. Recovery of investment without a proper plan may push OMCs into the red if oil market remains subdued and a portion of demand shifts to electric mobility. Government already has indicated that it wants electric to become prime mobility vehicle by 2030. On their part OMCs are also looking to diversify, but face immediate challenge to recover their current investment before consumption of conventional fuels start receding. “OMCs have flagged the issue but government is yet to take a view on the matter. Alternatives would be explored first before a call is taken to revise pricing formula for auto fuels,” said a government official privy to the development. Fuel prices have been deregulated in the country meaning that prices at retail level are determined on the basis of global movement of petroleum product prices. Currently, petrol and diesel prices are revised daily by OMCs based on average price of fuel in previous fortnight. If OMCs are allowed to recover cost on previous investment, pricing of petroleum products would again go back to a regulated regime or not reflect true value. A source said that instead of a direct premium for cost recovery, government may allow OMCs to keep petrol and diesel prices a bit higher in times of falling prices to prevent any public backlash to the measure. This has also been done by state-owned OMCs in times of state and national elections, when a complete price freeze was maintained. Government support on pricing is being explored as there is very little difference in prices of petrol and diesel at pump level and uniformity needs to be given if cost recovery is allowed.
Reliance tears into govt affidavit, says no final arbitration award due
Reliance Industries has mounted a strong counter to the government petition in the Delhi High Court seeking to block its USD 15 billion deal with Saudi Aramco, saying the petition is an abuse of process as no arbitration award has fixed any final liability of dues on the company. In a counter affidavit, Reliance said it was a “falsehood” to say that the arbitration tribunal had passed an award requiring the company and its partners to pay USD 3.5 billion to the government. It said the petition is an abuse of process as “it portrays that a sum of money is due and payable under the final award and purports to compute the money payable on a basis neither found in the arbitration award nor disclosed in the petition.” The government, it said, has calculated on its own volition the revised figure of its share of profit from oil and gas production allegedly due by extrapolating the purported finds. The affidavit came in response to the government moving the Delhi High Court seeking to block Reliance selling 20 per cent stake in its oil and chemical business to Saudi Aramco for USD 15 billion, in view of pending dues of USD 3.5 billion in Panna-Mukta and Taoil and gas fields. An international arbitration tribunal issued a partial award in October 2016 in the dispute between the Government of India (GoI), BG Exploration & Production India Limited (BG) and Reliance Industries Limited (RIL) regarding the Panna-Mukta and Tapti Production Sharing Contracts (PSC). The tribunal in its 2016 award determined certain issues of principles. Pending determination of all issues before it, appropriately, it did not award any monetary sums. Quantification of amounts, if any, by the tribunal is to be done when all issues have been decided. Certain parts of the 2016 award were challenged by BG/RIL before an English court wherein it decided some parts of challenge in favour of BG/RIL and directed the arbitration tribunal to reconsider those parts of the 2016 award. The tribunal, having reconsidered, issued another partial award in December 2018 which was in favour of BG/RIL. While this challenge was pending in the English court, GoI unilaterally calculated certain amounts, based upon its interpretation of the 2016 award, which the government alleges are payable by Oil & Natural Gas Corporation (ONGC), BG and RIL. Reliance said pursuant to the 2018 award, GoI’s claim comes down very significantly — a fact which the government has not taken cognisance of and approached the Delhi High Court prematurely for enforcement of its claim computed based on its interpretation of the 2016 award. RIL maintained that except as quantified by the tribunal, no amount can be said to be payable at this stage. GoI has challenged the 2018 award and the English court is yet to pronounce its judgment. One of the most significant issues pending before the tribunal is an increase in the Cost Recovery Limit under the PSC. The arbitration tribunal is scheduled to hear BG/RIL’s application for increase of PSC Cost Recovery Limit next year. If the tribunal decides in favour of BG/RIL, then GoI’s computation of sums allegedly payable by ONGC, BG and RIL is expected to further come down. Final amounts payable, if any, by the parties (ONGC 40 per cent, BG 30 per cent and RIL 30 per cent) can only be determined by the arbitration tribunal in the quantification phase of the arbitration which will be scheduled after it has decided on all the issues before it, it said. ONGC, who was directed by GoI in 2011 not to participate in the arbitration proceedings but be bound by the award, wrote to the stock exchanges in May 2018 that the government’s demand is premature. The 2016 award, in part superseded by the 2018 award, cannot be said to have attained finality and attempts to enforce the 2016 award are premature, RIL said.
DoT seeks Rs 1.7 lakh crore from GAIL in telecom dues
The department of telecommunications (DoT) has sought Rs 1.72 lakh crore in past statutory dues from state-owned gas utility GAIL India following the Supreme Court’s ruling on revenues that need to be taken into consideration for payment of government dues. Sources said DoT sent a letter to GAIL last month seeking Rs 1.72 lakh crore in dues on IP-1 and IP-2 licences as well as internet service provider (ISP) licence. In response, GAIL has told DoT that it owes nothing more than what it has already paid to the government. The firm told DoT that it had obtained ISP licence in 2002 for 15 years, which expired in 2017. But GAIL never did any business under the licence and since no revenue was generated it cannot pay any amount. On IP-1 and IP-2 licences, GAIL has told DoT that it generated Rs 35 crore of revenue since 2001-02 and not Rs 2.59 lakh crore that has been considered for levying past dues, they said. Sources said the dues being sought are more than three times the net worth of GAIL and several times the actual revenue earned. The apex court had on October 24 ruled that non-telecom revenues earned by firms using spectrum or airwaves allocated by the government will be considered for calculating statutory dues. While telcos such as Bharti Airtel and Vodafone Idea may have had non-telecom revenues generated from using the government licence and spectrum, firms such as GAIL had no such revenue.