State-run oil firms now given operational, financial autonomy

The union cabinet on Wednesday allowed autonomy to state-run oil companies in operational, financial and investment matters subject to certain conditions, enabling them to no more seek cabinet approvals in future in these areas.

The nod for autonomy was given in view of the vast and quick changes in the global oil market in over a year.

"In a far-reaching decision today (Wednesday), the cabinet decided to vest all public sector undertaking oil companies the power to pursue their own policies, autonomy to take on-spot decisions, and act according to exigencies required by market conditions," Communications Minister Ravi Shankar Prasad told reporters here after the cabinet meeting.

"The only condition to this autonomy is that the decisions should adhere to CVC (Central Vigilance Commission) guidelines and have the approval of the company board of directors," he said.

"The decision is designed to give autonomy to all PSU oil companies in operational, financial and investment matters. They need not first come to the cabinet for approval," the minister added.

Noting that the global oil market has become very flexible in terms of fluctuation in oil prices that fell over 70 percent through last year, before firming up somewhat, Prasad said that companies now needed to take spot decisions dictated by market conditions.

"The cabinet has approved that the oil PSUs shall be empowered to evolve their own policies for the import of crude oil consistent with the guidelines of the CVC and get them approved by their respective boards," a petroleum ministry statement said.

"The current market practices for the purchase of crude oil on spot basis also need to be adopted to compete effectively in the market. The current policy has certain limitations and restrictions in this regard which has now been done away with," said Prasad.

The move is aimed to make the state-run oil marketing companies (OMCs) -- Indian Oil, Bharat Petroleum, Hindustan Petroleum and Mangalore Refineries and Petrochemicals -- more competitive against private players like Reliance Industries and Essar Oil, and take advantage of the spontaneous buying of cargoes, instead of the existing long tendering mechanism.

The tender route for spot procurement currently adopted by OMCs restricts opportunities for quick decision-making for buying and selling.

Instead the "integrated trading desk" model adopted by private refiners, which involves traders being in continuous touch with market participants throughout the day, could help in buying crude oil cheaper by as much as 3-5 dollars per barrel, a senior official said.

Noting the need for an improved crude oil procurement mechanism, the Parliamentary Standing Committee for the petroleum and natural gas ministry had, in 2013, suggested state-run refiners be given flexibility in carrying out negotiations, including for pricing, hiring tankers and for better terms on freight.

"This measure, which is in keeping with the principle of 'minimum government maximum governance' will increase the operational and commercial flexibility of the oil companies," Prasad said.

The OMC shares fared well after news of the cabinet decision, with Indian Oil and Hindustan Petroleum stocks each gaining over 2 percent and the Mangalore Refinery and Petrochemicals nearly 4 percent at the close of trade on Wednesday, over their previous close, on the Bombay Stock Exchange.