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Energy Sources - What we did in Calgary

Jun 21, 2000

A lot of Mr. Sinha’s calculation on the deficit hinges on today’s Organisation of Petroleum Exporting Countries (OPEC) meeting at Vienna, Austria. The meeting is to decide on a production hike in order to curb the escalating crude oil prices. The current Union Minister for Petroleum and Natural Gas, Mr. Ram Naik has just returned from Calgary, Canada after attending the World Petroleum Congress. Mr. Naik has asked the OPEC to adopt a dual pricing policy whereby there would be differential pricing on crude oil for developed and developing countries.

This is a typical Indian solution, similar to our very own cross subsidisation pricing policy, be it for our petroleum industry, power industry or agricultural commodities. Such solutions as we all know have created rampant corruption and a huge parallel economy (black marketeer’s). If one is to look at the public distribution system numbers only a marginal amount of the food-grain reaches the targeted sections of society. Go by the capitalist thinking ‘what’s in it for me?’ What incentive does the shopkeeper have to sell the grain for less when he can siphon off the grains to the open markets at a higher price?

If we apply similar logic to world crude oil supply and even assume that the OPEC agrees on the percentage of production that is to be sold to the developing countries at lower prices, who is going to regulate whether the sales actually take place? (These countries have poor information disclosure) With the Middle East countries in constant turmoil they can renege on their agreements. With crude demand being highly inelastic it wouldn’t take very long to create black market.

Such a system would not work and if we tax payers have paid for our dignitaries to visit Calgary to chalk out a solution for the current problems one expects that they would contribute much more.

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