FROM BUSINESS WORLD OF 8 JANUARY 2006
Forced unemployment
A year and a
half ago, Mani Shankar Aiyar entered the petroleum ministry with much passion.
India has rapidly increased its imports of hydrocarbons in the last 15 years,
to such an extent that security of growing oil supplies in the future has
become a matter of worry. Mani aimed to find a solution to this problem.
But things did
not work out the way he had planned. First, he found government oil and gas
companies competing against one another; and since he was their ultimate chief,
the squabbles ended up in his room. He thought of resolving this problem by
merging the companies into two megaliths – one upstream and the other
downstream – but the plan soon ran into trouble. Company mergers reduce the
number of top positions – this is part of their rationale – and narrow
promotion prospects. Staff do not like that, and I expect they lobbied MPs and
politicians to stop the consolidation. Suddenly the idea faded away.
Then Mani tried
to bring India closer to Iran amongst the producers and China amongst the
consumers of hydrocarbons. He tried to push through the pipeline across
Pakistan. But that ran into Manmohan Singh’s grand design of forging an
alliance with the US and outflanking Pakistan. The US offered to end India’s
isolation and help it build substantial nuclear power capacity. And the Chinese
smiled enigmatically, but went their own way. Mani tried to bring the gas discovered
offshore Arakan by pipeline. But his elders in the government are currently annoyed
with Bangladesh; so that initiative too ground to a halt. Mani brought together
the oil ministers of Asian countries in the hope of setting up an Asian oil
market. But without anything to give them, he could not persuade them to follow
his initiative. Thus Mani’s moves petered out in the quicksands of foreign
policy.
And then came
the rise in oil prices. Vijay Kelkar had mapped out their decontrol in 1998.
Ram Naik half defeated the plan; the prices were decontrolled, but kerosene
subsidy continued and had to be financed by the government companies. Kerosene
subsidy funds a huge racket in which politicians are involved; it is what led
to Manjunath’s murder. And because of their involvement, the subsidy cannot be
dismantled. It was borne by the oil companies. Instead of being controlled, the
remaining prices were cartelized; oil companies were supposed to revise them
once a quarter.
The oil price
rise put an end to the fiction of decontrol. The oil companies were refused
permission to change prices. Mani had to go and beg the cabinet to let them
raise prices, which it did when it felt like. In the meanwhile, the only
question the pressmen had for him whenever they caught him was, “When are you
going to raise prices?” So he came to be known as the Minister of Imminent Price
Increase.
So we have
returned to the days of price control, minus the Oil Price Equalization Fund.
The incidence of the losses due to underpricing varies across companies. Since
Reliance sells little of its refinery products retail, it does not bear the
cost of kerosene subsidy. The petroleum ministry put enormous pressure on
Reliance to share the cost, but as far as I know, it has stood out till now.
But this pressure is souring the relations between Reliance and the government.
Given the importance of Reliance in the economy and the way it deals with the
polity, this bodes well for neither.
Thus for reasons
beyond his control, Mani has been deprived of all chances to achieve something
large and constructive in his domain. What can he do in the 3½ years remaining
to him?
One option he
has is to follow his predecessor Ram Naik and just have a good time. Naik knew
little about oil and tried even less to correct his ignorance. He let
bureaucrats run the ministry, and for the rest, went on junkets when he could
and did politics when he could not. It may come to that; but Mani should not
give up so soon.
He can still
apply his mind to the strategic reserve. The current idea of setting up a few
big stationary dumps is not great. Oil dumps are a favourite target in wars,
since they go up in flames so fast; hence they should be dispersed. And the
place to disperse them is the sea. Mani should persuade his oil rich companies
to invest in million-ton tankers; unlike investment in dumps, investment in
ships would earn a return. Oil storage and transport are still areas where Mani
can do something without being stopped by his senior colleagues.
A strategic
reserve could form the basis of an India-centred oil market. But for that,
import duty on oil would have to be removed; and foreign traders would have to
be allowed in. Neither is likely to succeed unless the finance ministry
cooperates. Mani would need all his persuasive powers to carry Chidambaram
along on this.
