Monopoly oil

Just when the global oil shock appears to be abating, the ministry of petroleum seems to be working on delivering a few shocks of its own.

Indeed, even under the new government, the ministry appears to be perpetuating, indeed accentuating, its control of the public sector oil companies. The ministry is reported to be delaying permission for ONGC's plans to set up retail outlets.

The plans of some other oil companies that are interested in investing abroad (Indian Oil among them) have been held up for the same unwritten reason: that, by diversifying, they will be straying into the territories of fellow public sector companies!

The obvious point to underscore is that bureaucrats and politicians sitting in Shastri Bhawan should not be the ones to decide what is or is not commercially viable.

Moreover, what is the point of giving public sector units operational freedom under the navratna policy if they have to be second-guessed all the time?

It's not as if ONGC is asking for some mind-boggling concessions. It had already been granted permission to set up retail outlets under the NDA government (both for itself as well for MRPL, which it bought). All it now wants is to be allowed to form a joint venture with government-owned financial institutions.

Since the resultant joint venture will be a non-government company, the pumps can be set up on strictly commercial terms, without getting entangled in social sector policy issues like allotting pumps to disadvantaged groups and so on.

The various parts of the government also seem to be pulling in different directions. While the power regulator and the Planning Commission, which has now been given a larger role in infrastructure building, are both trying to increase competition in the power sector, the ministry of petroleum is working on schemes to do the opposite.

As has been reported over the past several weeks, the ministry is in favour of merging the existing public sector oil companies to form one or two mega-companies.

While vertical integration""spanning oil exploration and production, refining and retail marketing""has been a proven business model in the global oil industry, trying to force mergers down unwilling throats is hardly a recipe for thumping success.

One, the global experience shows that mergers generally destroy shareholder value. Two, the way to create value out of mergers is generally by cutting overheads, including staff.

In this case, the petroleum ministry has made no mention of reducing staff. Three, the oil ministry has still not got the government to decanalise imports of petroleum products. Nor has it done much to ensure that oil companies are forced to share their assets (such as storage depots) with each other.

As a result, if a merchant importer is to import kerosene, he cannot do so until he creates his own storage depots. In other words, there's no attempt to increase competition, which is the only way customers can get a better deal. The petroleum ministry, it seems, would be happier nurturing public sector monopolies than encouraging competition.