This follows a recommendation by the committee of secretaries, which has asked the ministry of petroleum and natural gas to set up an institutional mechanism to decide the import proportions under term contracts as also spot purchases.

While long-term import contract will give the country assured crude supplies, there will not be any impact on the price front.

Even for long-term contracts, oil supplies are made at the prevailing market price.In accordance with the decision to go in for a long-term crude import contract, the petroleum ministry proposes to import 25.75 million tonnes of crude oil during 1998-99 as against 21 million tonnes last year.

The proposal for term imports of crude in the current fiscal has been made taking into consideration the requirements indicated by the refineries, availability of specific grades of crude in the international market, need for maintaining diversified sources of supply, need to ensure continuity of relationship with term suppliers and overall economics bases on the aggregate yield pattern of the refineries, according to the oil ministry.

Since the government favours long-term contracts, the oil ministry has been advised to establish closer ties with the Middle East oil-producing countries in coordination with the ministry of external affairs.

The total import requirement has been placed at 37 mt of crude. The maximum amount is proposed to be contracted from Saudi Arabia (7.5 mt), followed by UAE (5 mt), Kuwait (4.5 mt), Nigeria (3 mt), Iran (2.5 mt), Iraq (1.5 mt), and Malaysia (1.75 mt).

The total estimated category-wise requirements of imported crude during the current fiscal is: lube-bearing (9.60 mt), non-lube bituminous (10.50 mt), non-lube non-bituminous (1 mt) and low sulphur (15.90 mt).

The refineries throughput during 1998-99 is estimated at 67.85 mts. After utilising the indigenous production of crude oil, the balance will be imported. The current year's indigenous crude oil production is estimated at 34.6 mts. The total import will, thus, have to be of the order of 36.96 mts.Saudi Arabia will supply the entire requirement of lube bearing crude for the three lube refineries - HPCL, Mumbai; MRL-Chennai; and IOCL, Haldia.

For the non lube bituminous category, Abu Dhabi has been identified, apart from Kuwait and Iran.

Malaysia will supply the low sulphur category crude while Iraq has been identified for the lube bearing category . Nigeria, similarly, emerged as the source for the low sulphur crude. But since the national oil company of Nigeria, NNPC, did not respond favourably to a term arrangement proposal, the Nigerian crude is now being purchased from the open market on competitive tender basis. After dismantling the administered price mechanism (APM), this is the first year during which the refineries would be allowed import related product prices at the refinery gate rather than prices based on cost and a guaranteed return.

Insight

The long-term contracts for procuring oil will be hardly different from the yearly contract, which is in vogue. Supply still exceeds demand in oil so there is no question of non-availibilty on a long-term basis. Oil-producing countries have, in fact, gone in for a cut in production owing to lack of buyers. Further, the shift to long-term contracts will not result in any cost benefits.Considering the depressed prices of crude oil in the international market, what was required was to allow refineries access to the futures market. This would have allowed them to 'fix' oil prices at the level they desired.