MUMBAI, June 8: The odds on an oil price rise are at last good. After months of dithering, the government's hand on a price hike has virtually been forced by G V Ramakrishna and his fellow-members on the disinvestment commission.

The panel has deferred a decision on the dilution of government equity in Oil & Natural Gas Corporation (ONGC) and Oil India Ltd (OIL). It says the government should make it known, before any disinvestment, that the administered pricing mechanism for select petroleum products will go within two years.

Adds the panel's third report: "Disinvestment in the oil giant should be considered after organisational changes changes are in position and the new pricing policy is known".

The recommendation will put pressure on the ministry of petroleum and natural gas to do some serious rethinking on deregulation of the oil sector. If the suggestion is accepted by the Cabinet, there will be no way out for the government but to raise prices of select petro-products.

The commission has made out a strong case for the ONGC and OIL by asserting that there is no way government holding in these PSUs can be off-loaded before removing the cumbersome administered pricing mechanism.

The commission believes, and quite rightly, that if this is not done, it will translate into selling the shares cheap to foreign investors. The message sent out is loud and clear - do not sell the family silver at a throwaway price, especially when it concerns oil PSUs.

It remains to be seen if the government is going to take the recommendations of the disinvestment commission seriously. For one thing, there is no indication if the administered price mechanism is going to be abolished at one go, though this was suggested by the Sundararajan Committee on oil reforms.

The R-group which was set up after this report was prepared decided to pussy-foot instead and recommended that such opening up of the oil sector be done in phases.

This was accepted by the government and it is quite clear that it will be 2002 before complete abolition of APM is even thought of. So, where does that leave the recommendations of the disinvesment commission? Most likely, in a dusty government file for the next five years!

None can fault the commission's suggestions and its chairman, Ramamkrishna ought to be credited for pointing out in no uncertain terms that the public oil sector cannot be sold for a song. After all, corporations like the ONGC could easily stand up to the world's best in technical and managerial competence. One can well imagine where it would be today if allowed to function autonomously, possibly among the world's top 10 exploration companies. Little wonder that the disinvestment commission did not think it fit to sell its shares at a level which would evoke surprised mirth from any investor.

The same is the case with OIL whose true potential can only be known if APM is removed and payment for crude is made at international prices. The corporation was actually on the disinvestment list for 1997-98 through a piggyback arrangement with the government. It may still work out if the ministry of finance has its way and decides that balancing the fiscal deficit is more important than any suggestion on deregulating the oil sector.

In the case of Oil India Ltd, Ramakrishna has also said that any disinvestment can only be considered after a year or so when OIL's own prospects are clearly established through the outcome of exploration activities in the North Brahmaputra area. The panel has said, however, that it will review its position on disinvestment by oil PSUs at a later stage.The bigger problem these companies face today is a severe shortage of funds which has come about due to the oil pool deficit and abetted by the government's dilly-dallying in hiking prices.

For instance, ONGC is yet to receive payment for crude sold to the Indian Oil Corporation.

The two had agreed on a six month payment period but to date, the amount of Rs 1,650 crore due in May is still outstanding in ONGC's books.

In the case of OIL, it needs money to fund its many exploration programmes in the north and north-east and latest estimates are that it has around Rs 500 crore as internal accruals, which is hardly sufficient. OIL officials had, in fact, met their counterparts in the disinvestment commission on May 29 to discuss the offloading schedule for 1997-98. It was proposed to be 10 per cent where the government and the company would get to share the proceeds through a GDR-cum-public issue.

The disinvestment commission was silent about the downstream sector where the worst casualty is IOC. The Fortune 500 company is burdened with oil pool dues of nearly Rs 10,000 crore and has to resort to heavy borrowings to tide over the crisis.

IOC, more than its upstream counterparts, will benefit enormously if APM were to be removed. It has a refining capacity of 25 million tonnes with 15 million tonnes scheduled to be added during the next five years.Today, the giant is crippled because no decision has been taken on increasing prices. As a result, IOC is not likely to go ahead with its GDR programme during 1997-98 or the public issue that follows later.There is every possibility of the government increasing prices but this will not be adequate to alleviate the pool deficit or IOC's outstandings. And with the ministries of finance and of petroleum and natural gas still battling out an old issue of settling dues of Rs 4,000 crore, the problem has become more political than economic.

Equally important politically is the fact that the government can ill-afford the unpopularity that will result from the inevitable inflation-push that will follow an oil price hike. The 13-party United Front coalition government has not achieved unanimity among its partners on the subject despite protracted debate.

The biggest victim of this sort of dithering has been IOC at a time when the present financial was a crucial one for the corporation. According to experts, the issue is not so much to do with removal of the administered prices mechanism as it has to with government interference in these PSUs. If the boards of Hindustan Petroleum and Bharat Petroleum had more autonomy translated as government holding below 51 per cent, their levels of efficiency would have been quite different.

There have been cases where bureaucratic delays have led to prized contracts being lost. And to think this is happening to companies which have been the navaratna tag by the government. This is the tragedy of the system. There have been suggestions galore in the past and the disinvesment commission is the latest to join the ranks but finally nothing will come out of it.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.