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Govt is focusing on targeted kerosene subsidy: Dharmendra Pradhan

Interview with Union Minister of State for Petroleum & Natural Gas

Business Standard 

The ministry is focusing on targeted kerosene subsidy: Dharmendra Pradhan

Union Minister of State for Petroleum & Natural Gas (Independent Charge) Dharmendra Pradhan is steering the ministry at a time when global crude oil prices have crashed to an 11-year low, creating huge pressure on upstream capital expenditure, even as the sector is struggling to recover from flat output growth. In an interview to Business Standard, the Rajya Sabha Member of Parliament from Odisha shares the government's strategy to maximise gains from the crude price slump and kerosene subsidy reforms. Excerpts.

What have been the main achievements of the government in the petroleum sector in the past one-and-a-half years? What are the focus areas?

The ministry had a challenging role when we formed the new government. There were many legacy issues, including gas pricing. The previous government had already decided to raise prices from $2.4 per unit to $8.4 per unit but the Election Commission had kept the decision in abeyance. Other legacy issues were related to the use of Aadhaar in direct benefit transfer (DBT) in LPG and the overall decline in production. The ministry was also seen as being hostage to corporate interests.

We believe we have been able to bring to the forefront the idea that the ministry is ultimately there to serve the poor and the common man. Our aim is to increase India's energy security through increased domestic production, as well as overseas acquisitions. The ministry has the largest consumer interface among all government departments. About 30 million consumers avail the services of retail pumps daily, compared to 20.3 million railway users. The ministry is also working on a mission mode to increase LPG and PNG penetration, from the existing 60 per cent to 100 per cent. We have brought about reforms to cut down the government's intervention in the execution of contracts and have made them more flexible.

The third initiative is the new exploration regime for the next bidding round. It includes revenue sharing, pricing freedom, open acreage licensing and uniform licenses. I will seek Cabinet approval soon for this policy. While deciding gas prices, we have taken care to look at the affordability for the end-user and not just the profitability of the wellhead for companies. We have three guiding principles for policy formulation - higher revenue for the government, a customer-focused approach and transparency.

Do you think the government has been able to utilise the opportunity from the slump in crude oil prices to push through reforms? Can you elaborate on the strategy behind allowing oil firms to create a pool account from the subsidy savings? In case prices shoot up again, how will it impact these policies?

The decline in global crude oil prices gave us a window to decontrol diesel prices. This has been the biggest benefit from the price slump. Oil marketing companies (OMCs) are currently taking a hit as a result of the price slump. People ask why we are not reducing product prices in line with the crude price decline. OMCs have passed on the benefit of crude price decline to consumers through 20 reductions in retail petrol prices and 16 cuts in diesel prices, leading to a cumulative decline of around Rs 13 a litre in both the fuels since June 2014. We must understand the OMCs had bought the same crude, which is today available at $33 per barrel - at more than $50 per barrel price months ago. The refinery sector has suffered an inventory valuation loss of more than Rs 10,000 crore so far in FY16. The other benefit of reduced prices has been that we have been able to keep a part of this benefit for development work by way of increasing excise duty. This has allowed us to maintain revenue deficit without cutting the budget. As many as 22 states have also raised value-added tax rates to benefit from the price slump. In case prices rise in future, we always have the flexibility to offload excise duty. So, this has been planned as a shock absorber.

What is the likelihood of a roll back of diesel price deregulation, in the event of an election?

Price deregulation has remained a permanent feature. In fact, we reduced prices during one of the Assembly elections recently.

What are you doing to bring about kerosene subsidy reforms?

We were successful in implementing DBT in LPG because the ministry had a list of LPG consumers available. That is not the case with kerosene, which is given in bulk by the Centre to state governments, who, in turn, decide on distribution. The challenge is there is no proper and uniform list of kerosene consumers available. The day we have that list, we will introduce DBT. For this, active discussions are on with states. We have received positive response from seven to eight states.

We have been able to build an understanding in favour of a kerosene-free environment. We are talking to Madhya Pradesh, Andhra Pradesh, Gujarat, Karnataka, Pondicherry, Punjab, Haryana and Jharkhand. We are trying to identify 25 districts across the nation where the list of consumers will be made and we will focus on providing targeted kerosene subsidy. But the states have to agree to this and have to be partnered with.

Is it true that the government is working on a proposal to cut down LPG subsidy for individuals above income level of Rs 10 lakh per annum?

The GiveitUp campaign has been a major success. More than 5.5 million consumers have given up LPG subsidy since the Prime Minister's call on March 27 this year. Their profile varies from retired school teachers to chief executives of companies. This means these consumers do not mind giving up a monthly subsidy of around Rs 200-250 per cylinder. Our strategy is to bring about desirable reform without hurting the consumers.

Big oil companies have traditionally shied away from Indian hydrocarbon bidding rounds. Do you think the new exploration policy being drafted will attract bids from companies?

All companies, including the big ones, follow their own financial models. Remember that the shale revolution in the US was brought about by small companies and innovators. None of the big 10 companies of the world were behind it. It is only when technology became commercially viable that the big firms bought it. It may not be proper to depend on big companies for access to technology. It is not as if these companies prefer one geography over another. The operational model, priorities and strategies of big companies are focused towards profit-making. But this does not mean we should not make investor-friendly policies.

How would you see Cairn's India's latest decision to approach the Delhi High Court on the issue of extension of production sharing contract (PSC) for the Rajasthan block?

As trustee of the nation's natural resources, the government would never like to indulge in disputes. But there was no need for Cairn to approach the court. They should not have opted for judicial recourse in a hurry. The government cannot give extension to the term of a PSC without due-diligence.

In the ONGC-RIL gas dispute, why did the government choose to set up a committee rather than take a decision based on the consultant's report?

We did take a decision. The A P Shah Committee has been asked to submit a report in three months. The ministry has studied the DeGolyer & MacNaughton (D&M) report with the chronology of events. RIL was given the KG-D6 block in 1999. Exploration began in 2001 and production started in 2009. ONGC got the Godavari PML block in 1997. Cairn Energy had got the KG-D5 block in NELP I. ONGC was given this block in 2005 and later approached the court alleging migration of gas. We asked the Directorate General of Hydrocarbons to ask a consultant to prepare its report in July 2014. The Delhi High Court in September disposed the case and said the government will take action, based on the report within six months of its submission. If ONGC is not satisfied with that action, it can approach the court again. The report came on November 30, talking about a certain amount of gas that has drifted. The Shah panel has been set up to ensure transparency and fairness. It has been asked to scrutinise all parties, including the government.

Is your ministry geared up to meet the additional demand for CNG as a result of the recent orders of the NGT and the Supreme Court aimed at curbing diesel usage?

We must understand Delhi's main issue is pollution and governance, and not Delhi & District Cricket Association. We have the capacity to provide 6.8 million kg of CNG in Delhi but we are able to provide only 2.2 million kg daily. Secondly, we have just got cheap gas from abroad as well. So, why is the Delhi government not running the Bawana gas-based power plant? Odd-even is a good idea to address the issue of pollution but it can only be a temporary measure.

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First Published: Sat, December 26 2015. 00:58 IST