Oil Sector Reforms Likely From April
The government is likely to set the ball rolling for the first phase of oil sector reforms by announcing measures with financial implications in the Union budget on February 28.
Expected to begin from April, the beginning of the fiscal year 1997-98, the first phase of the reforms would be implemented in two years and will involve rationalisation of tariff structure, removal of subsidies on high speed diesel, kerosene, liquefied petroleum gas and input for fertilisers, a cabinet note prepared by the petroleum ministry has suggested.
Based on the recommendations of the R-Group, set up to review the oil sector reforms, the note also suggested withdrawal of the concept of a retention margin for refineries, deregulation of natural gas pricing, decanalisation of furnace oil and bitumen, partial deregulation of the marketing sector, including freedom to appoint dealers and distributors.
According to the note, the reforms process has to be started for successful implementation of other policy measures, particularly disinvestment in the major public sector undertakings in the oil sector such as the Oil and Natural Gas Corporation (ONGC) and Indian Oil Corporation (IOC).
The note stressed that the proposed reforms would help maximise the value of these enterprises, getting the government the highest possible price during disinvestment. The reforms were also expected to provide synergy with the much-needed organisational restructuring of these enterprises, the note said.
The note agreed with the R-Groups recommendation that the reforms should be implemented in phases to absorb the socio-economic impact and the time lags inherent in increasing the supplies and reallocating resources.
For example, the government would have to ensure continued availability of kerosene and high speed diesel (HSD) in rural areas at reasonable prices. Any rapid distortions in the availability and prices may generate not only resistance to such policy initiatives, but also social tensions.
The note also pointed out the need to maintain a degree of stability in prices of petroleum products for mass consumption - motor spirit, high speed diesel and kerosene.
The inadequacy of the current port facilities and such transportation facilities as pipelines to absorb additional volumes of imports and movements in the wake of deregulation was another factor for introducing the reforms in phases, the note said.