Economy
Huge tasks await for Dharmendra Pradhan, the new oil minister

No doubt, Dharmendra Pradhan would do all that it takes to ensure work goes on smoothly, and clears approaching hurdles.

The new minister, Dharmendra Pradhan, has a lot on his plate that the former UPA minister Moily left for him to handle.  It may be recalled that the major issue that needs immediate attention is the fixation of the gas price for Reliance, which ought to have been effective from 1st April, but could not be introduced due to the elections.  Now the ball is in Pradhan's court. No doubt, this pending issue may have to be discussed by the Cabinet before being made public.

Will the new government honour the commitment made by the previous administration, at least for the time being before finalising the issue? At the same time, they have to consider the policy of pricing the domestic gas produced, including whether the rate should be on a US dollar base, and if so, at what rate of rupee conversion. This gas price, when announced will be applicable to all gas produced in the country. The Minister will also have to tackle the issues relating to retail price of auto fuels
 and capping of LPG subsidy.

In his meeting, Pradhan is reported to have stated that self-reliance was important for the country to become an economic "super-power". For the time being, and for years to come, this self-reliance depends upon how Reliance increases its gas production and finds new fields to ensure greater supply of both gas and oil to the country!

Pradhan has also stated that the focus of the Modi government will be eradicating poverty.  At the moment, there is poverty of power to deal with too!

According to the press reports, Pradhan apparently has been adviced by his ministry officials on matters relating to "decisions" that "should not" have been taken on subsidising domestic LPG cylinders etc. There is a lot of focus on ONGC which is a government enterprise directly involved in the matters which are primary concerns of this ministry.

First is the good news that ONGC has been exploring the Krishna-Godavari block (KG-DWN-98/2), primarily classified as a "gas field", and have luckily "discovered" huge reserves of oil, initially estimated to hold 100 million tonnes, according to Narendra Kumar Verma, Director, Exploration. While further exploration and investigation work is going on at the site, plans are on the anvil for ONGC to start producing oil from this field by 2017-18. No doubt, Dharmendra Pradhan would do all that it takes to ensure work goes on smoothly, and without interruption of any kind, to get the oil to really gush out earlier than 2017-18, if practical.

The second major job on hand for ONGC, is the exploratory drilling in the Palar basin, which is some 40 kms North of Chennai, and which falls between two existing prolific producing Cauvery and Krishna-Godavari basins.  According to Verma, it will take about four months to drill its way to reach 2,000 metre depth.  Due to strong cash reserves and focus on exploration policy, ONGC is already in the process of upgrading their hardware, including rigs, floaters etc.  It appears that new generation rigs with joysticks are being extensively used in the US, as these can drill upto 4,000 metres in three weeks, and can be assembled or dismantled in a day.

So, as soon as possible, it would worthwhile for ONGC to obtain a few of these so that they can carry out several drilling operations in prospective sites in various blocks under their control.  Past experience with exploration shows that when such exploratory drills are undertaken, only one out of ten becomes successful, and even then, the yield may not be significant. It may be mentioned that in the nine rounds of auctions, 302 blocks have been given out, where 123 "discoveries" were made, but only six have begun to produce anything of importance.

Another important issue that Minister Pradhan will have to study carefully.  And this relates to the 84-page report from the Comptroller and Auditor General, who has slammed both the Oil Ministry and Director General of Hydrocarbons for "failing to check" and for "losing control" over Reliance Industries on its spending which impacts the government revenue in KG-D6 fields.  

It may be noted that the present oil field contracts permit companies to recover their investments in a "graded" manner before sharing revenue with the Government.  Any "unjustified" or "excess" amount spent without "due  approval" may adversely impact the government's stake.  Minister Pradhan will no doubt need good advice on this score to handle present and future contracts.

One other issue that the Minister may need to look into relates to the present manpower, both technical and otherwise, in the Ministry and DGH.  Whether one likes it or not, some dead wood and paper pushers may have to be removed and replaced by qualified technocrats.

It may also be necessary, and perhaps prudent, for the Minister to see if ONGC itself needs any reorganisation, and whether they can be burdened with 40% share of losses of state run fuel retailers who incur these in selling diesel, cooking gas and kerosene below the cost of actual production. It is a difficult decision to make, but to what extent can they continue to "sell" below the actual production cost?

As if these issues are not enough for a single plate, Minister Pradhan has the following pending issues to tackle, as soon as possible:

a) Gujarat State Petroleum  has been waiting for an environmental clearance to lay a 11.5 Kilometre pipe line; work has been suffering for months now;

b) Cairn India had sought for reinstatement of surrendered fields and the Oil Ministry had indicated that they may have to again make a bid to get the block. There is no reason for such an approach      and an explorer like Cairn, with a proven track record, need not be put through such an unreasonable demand.

c)  Gas prices which were gazetted on 17th January, but withheld due to the elections; can be set right now;

d)  Urea manufacturers have been unable to get the gas they need due to fall in production from Reliance; The Ministry must either make the gas available through other sources but ensure production does not suffer. However, as gas supplies are low at the moment, and not sufficient to meet domestic needs, overseas projects to be set up by the government with main gas exporters like Qatar.

A full plate awaits action from Minister Pradhan.

(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce. He was also associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the

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COMMENTS

N.Paramasivam

3 years ago

There is no issue of capping the LPG cylinder numbers. It should be 12 per year. Because, it is the source for LIG/MIG people. Govt. should make LPG for commercial purpose with differently coloured cylinders and fix price accordingly.

Indian govt cuts import tariff value on gold, silver

Following petroleum, gold is the second most imported item into India. Last year, the country’s total gold and silver imports dropped 40% to $33.46 billion, due to curbs imposed by the Indian government.

The Indian government, on Monday reduced the import tariff value on gold and silver to $408 per 10 grams and $617 per kg respectively, in view of weakness in bullion prices globally.

 

In the second fortnight of May, the tariff value on imported gold stood at $424 per 10 grams and silver at $650 per kg.

 

The import tariff value — the base price at which Customs duty is determined to prevent under-invoicing — is revised on a fortnightly basis taking into account the volatility in global prices.

 

The reduction in tariff value on imported gold and silver has been notified by the Central Board of Excise and Customs (CBDT), an official statement said.

 

In the last few sessions, global gold prices have been ruling on a lower side as positive US economic data backed the case for the Federal Reserve to continue reducing the monetary stimulus, which has dimmed the metal’s appeal.

 

In Singapore, both gold and silver were trading down at $1,246.9 per ounce and $18.70 per ounce respectively, today. Taking global cues, domestic gold rates in the national capital touched an 11-month low of Rs27,400 per 10 grams.

 

Due to curbs imposed by the Indian government, the country’s total gold and silver imports dropped 40% to $33.46 billion in 2013-14 against $55.79 billion in the previous year.

 

Gold is the second most imported item into India after petroleum. The government had taken several measures to curb gold shipments to address the high current account deficit.

 

These measures included raising the import duty to 10% on the yellow metal and also made it mandatory for traders to export 20% of the imported gold.

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HSBC India manufacturing PMI in May inches up to 51.4

During May, inflation was a mixed bag, with input prices easing and output prices rising, therefore RBI is likely to retain its hawkish stance on Tuesday, but may pause for more clarity on inflation risks, says HSBC

Led by higher order flows from both domestic and external sources, the HSBC India's manufacturing Purchasing Managers Index (PMI) improved marginally in May at 51.4 points compared with 51.3 in April.

 

However, output was unchanged at 51.7 points due to power shortages that forced firms to accumulate backlogs at a faster pace.

 

New export orders also bounced in May (53.7 vs. 53.0 in April), which also helped employment pick up slightly (50.6 vs. 50.2 in April) in light of strengthening order flows, HSBC said in a release.

 

In May, the quantity of purchases (51.8 vs. 53.0 in April) was weaker, despite the improvement in order flows. Meanwhile, stocks of purchases (49.9 vs. 52.1 in April) were drawn down and stocks of finished goods (51.0 vs. 52.7 in April) accumulated at a slower pace.

 

“Inflation was a mixed bag, with input prices easing and output prices rising. The outlook for inflation is complicated by risks from El Nino and possible pro-growth policies from the new government. The Reserve Bank of India (RBI) is likely to retain its hawkish stance on Tuesday, but may pause for more clarity on inflation risks,” HSBC said in a statement.

 

Overall, retail level inflation is far too high for comfort and the outlook remains challenging. Potentially weak rainfall due to El Nino could push up food inflation. Moreover, if the government decides to loosen its purse strings and follow a pro-growth strategy, it could fan inflation further. The RBI, therefore, is likely to remain on hold in June, waiting for more clarity.

 

HSBC further said that manufacturing momentum may be more or less stable, but it is stuck at a relatively depressed level. Incrementally, demand may be strengthening from both external and domestic sources. However, capacity constraints in the economy including from energy shortages are hampering growth.

 

With last month's election result, momentum should tick up in the coming months as previously pent-up consumer and investment spending starts flowing again. Still, risks linger, including potentially poor rainfall in the coming months.

 

Encouragingly, input price pressures eased further, but with output prices still rising the RBI will remain vigilant, the release added.

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