Citizen’s Concerns Regarding the Petroleum Industry

(The following is the statement issued for the press on 6 September 2002 on behalf of concerned citizens. Prominent among the signatories include SP Shukla, K Ashok Rao, KN Kabra and Shashi Bhushan.)

It is denationalization of a strategic sector and not just privatisation.

The sale of equity of HPCL and BPCL is the beginning of the process of de-nationalisation of the oil industry. Oil has been and will continue to be a strategic resource everywhere in the world. Therefore it has critical geo-political importance for the developed countries. In the developing countries both oil exporting and oil importing countries the question of nationalization or de-nationalization of the oil companies has been a matter of political strategy where the most critical concern has been questions of self reliance, economic development and national defence.

George Kennan, Chief Planning of the US State Department of Policy Planning, proposed in 1949 that US control over Japanese oil imports would help to provide “veto power” over Japanese military and industrial policies. This advice was followed. Japan was helped to industrialise but US maintained control over its energy supplies. This has remained the corner stone of the foreign policy of the United States. It is not surprising that one of the major thrust areas of neo-liberal policies advocated by the World Bank is to restructure the Energy industry essentially petroleum and electricity sectors.

It is unacceptable that such critical issues of national importance can be reduced to an in house non-transparent exercise narrowly oriented to a commercial exercise of disposal of a clutch of shares that can be decided by a sub-committee of the Council of Ministers of the Government of the day. The issue is one of de-nationalization with all its short and long-term ramifications. It is therefore imperative that the Parliament of India should debate the issue and a national consensus is arrived at before any decision is taken.

Also important is that the developments in the oil industry are seen in the light of the World Bank imposed reforms in the power sector and the proposed legislation on electrical power that delinks investment in generation with the choice of fuel. What would be the consequences of all these reforms in the fuel-energy balance and consequently on the foreign exchange requirements and external sector of the economy needs to be spelled out. It may be recalled that the oil imports is one of the major contributors to the continued trade imbalance and was a critical factor that led up to India accepting the conditionalities of structural adjustment loan of the World Bank.

It needs to be recalled that not long ago, unable to withstand the competition from the Public Sector the Multinationals began their strategy of “negotiated take over by the Government”. The Esso Eastern Inc. proposed that the Government of India negotiate a takeover. The Multinationals themselves proclaimed that, “ the private productive assets were acquired by the public agencies for continued operations” The refinery and marketing assets of the Esso Eastern Inc. were merged to form the Hindustan Petroleum Corporation (HPCL) and that of Burmah Shell to form the Bharat Petroleum Corp. Ltd. There was criticism for the Government for the excessive compensation for buying “huge junk” as one MP described it. Parliament was informed that in the case of Caltex, the written down value of the assets was the basis for compensation. Had the same principles been used for ESSO and Burmah Shell they would have received much less compensation.

In the case of HPCL, since the take over, more than Rs. 9,000 Crores has been invested and the free reserves of the company are over Rs.5,500 Crores. (At the time of take over ESSO share capital plus reserves plus surplus was only Rs.16.80 Crores and the Gross Block of fixed assets of both ESSO and Caltex was only Rs. 50.36 Crores.) In the case of BPCL the current unrevised historical Gross Fixed assets are over Rs. 8,800 Crores. It is now proposed to sell these companies, nurtured by taxpayers’ funds, back to the Multinationals and their fronts. The Public Sector Oil Companies are being debarred from even making a bid in order to ensure the re-transfer of massive strategic assets of the people back to the Multinationals. This is a betrayal of the nation.

Despite the administered price mechanism HPCL and BPCL were and would continue to be amongst the most profitable enterprises in India. To disinvest them is to forgo substantial public revenue and accentuate the fiscal deficit. Similar concern has also been brought out in the Reserve Bank of India’s Annual Report for the year 2001-2002.

A very large part of rural India still depends upon Kerosene. Agriculture (and transport) is dependent on diesel. The availability of these products and their price are crucial for rural life and the agricultural economy. Considering the demand profile, most of the distribution channels in rural and remote areas are loss making. In this environment, free from administrative pricing mechanism, creating a private sector having monopolistic control over strategic assets and still retaining a public sector (the combined strength of HPCL and BPCL is more than that of the Indian Oil Corporation) to take care of the public interest concerns is certain to result in the privatisation of profits and nationalization of losses.

The above stated issues of are of grave national importance and therefore a full fledged debate in the Parliament is the least that needs to be done before the de-nationalization of this vital strategic and highly geo-political sector.