Oil is not well

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More than a decade back the then chief minister of Himachal Pradesh Santa Kumar was snubbed by the voters in assembly polls. He made a very interesting and uncommon remark on his defeat.  He said that he denied Gulab Jamun to patient of diabetes. He insisted karela ka juice instead and faced the consequences from angered patient who naturally was enjoying the Gulam Jamun and ignoring the fact that it is killing him. Shanta Kumar was referring to supposedly hard steps he took for ensuring long term gains and economic stability in the state which obviously did not go well with voters.

Having said this I would like to put a disclaimer in place that I am no Shanta Kumar fan nor I know what kind of karele ka juice (or hard measures) was he talking about but I truly appreciate the point he was trying to bring out. By and large we Indians have a very short vision and only care for our instant relief of some sort without bothering to care the long term negative implication of any action. Political parties make most of this habit of us by showing carrots before elections and sweep votes. There are few who has that courage to bite the bullet and take hard measures. At least in Indian politics, it rarely happens and when actually it happens people like Shanta Kumar pays the price.

As a rare gesture of courage, finally UPA  kicked off big ticket reforms by raising HSD price and putting a cap at nos. of subsidized LPG cylinders.  As usual there has been huge uproar both by aam janta  and political outfits. Electronic media (particularly Hindi channels) broadcasted all those emotional stories on ordeal of public (read aam aadmi) caused due to so called costly petroleum products. I am speechless on such things. If politician can show the courage of conviction then why not media? On contrary, other day I was watching Rahul Bajaj on one of the business channels. Despite the fact that his business would be negatively impacted by high prices of petroleum product, he was advocating the move. He was very articulate and straight forward in expressing his views. He said one line that public should understand that money is not going to come from heaven. I am in emphatic agreement with this statement of his.

Letís have a look at the statistics. India consumes around 30 lakhs barrels of crude oil per day. Where as the domestic production is just 8 lakhs barrels.  So we are importing 22 lakhs barrels a day. Even if I assume USD 100 per barrel, daily import bill is Rs. 1150 crores. It means annual crude oil import bill is around Rs. 420000 crore, ie around USD 80 Billion. This calculation is based at USD 100 per barrel. In realty it is much more. In 2011-12 the import bill was USD 140 billion.

At the top of it the hard fact is that for at least a decade to come there is no chance of any substantial increase in domestic crude production whereas demand would multiply in the same time. So you can not postpone the problem as futures nestles even bigger problems to handle.  If you look at the current exploration activities in India by ONGC, RIL and other IOCs (International Oil Companies), you will find that no major discovery is on the card. The last success story was of Cairn India in Rajasthan and I believe that it would remain the last success story in Indian O&G sector for a period to come. There are countries in world who imports crude heavily like India but in most of the cases such countries have a strong pipeline in other portfolio which compensate for their heavy crude import bill. But we are not so lucky. Last year itself the trade deficit was around USD 180 Billion.

Oil PSUs are reeling because of high under recoveries. Do we want to make all three major downstream PSUs permanently sick, like Air India is currently? Barring aviation fuel, lubricants and some special products, oil PSUs are losing money in all their businesses. Government is asking upstream companies like ONGC/GAIL/OIL to share the burden but then these companies can provide little reprieve considering the huge deficit. Moreover it is not advisable to siphon money out of upstream companies because it may impact their exploration plans, which is least desirable in a country starving for crude oil.

Now letís come to peopleís clamour. In most of the cases it is so much hyped. Almost all lower middle class family in this country consumes less than six cylinders a year. So no issues. Those who consumes more, they can purchase seventh cylinder on extra cost, they can afford it. If they say that they find spending additional 300 rupees for a cylinders bit too much then I donít agree. They are the people who would throw 500 bucks at Dominos for a pizza just like that but canít spend 700 rupees on a cylinder which would ensure food in their kitchens for one month.

The arguments are endless. I believe that I donít need to convince you that what is happening with PDS kerosene in our country. The money being spend on subsidizing Kerosene is actually like throwing money in a dustbin.

So letís come back to Shanta Kumarís statement now. If blood sugar is going up then better start cutting sugar intake and start taking karela ka juice. You would at least survive to taste Gulab Jamum occasionally. Or else wait for the day when you wonít get either of them. So letís all hail Manmohan Singh and Jaipal Ready and UPA. For a change UPA also deserve applause.

And at last thankfully I am not a politician otherwise my political career would have buried alive after expressing these view on such contentious issue.