Energy: Will the schedule be met? - Views on News from Equitymaster

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Energy: Will the schedule be met?

Aug 21, 2001

As part of the reforms package the Government chalked out a four-phase schedule to gradually decontrol the energy sources sector. March 2002 marks the end of the four-year transition period. As per the original schedule the energy sources sector is to be fully deregulated with the deficit in the oil pool account to be transferred to the fiscal budget. However, before the complete breakdown of the controlled regime the Government (Ministries involved) has to brainstorm on handling the huge deficit in the oil pool account (OPA) estimated at Rs 130 bn. The concerned ministries are reportedly attempting to work out a solution. The various alternatives being looked at are issue of oil bonds, reduction in import duties and increase in prices. Also, the finance ministry does not seem averse to taking on manageable amount of deficit into the central budget.

The Ministry of Petroleum & Natural Gas also needs to establish an independent regulator in the lines of those present for the telecom and power sector. This is mainly to ensure the following:

  • Fair pricing of fuels. Hydrocarbons are essential inputs in the industrial, commercial and domestic sector. Energy sources are critical to the functioning of the economy and form part of the core sector.

  • With the entry of private players in vehicular fuel marketing, there runs a risk of private investments concentrating only in the high consumption zones. The regulator will be required to ensure setting up of distribution assets in the vast hinterlands of the country.

    The Concerned ministries need to act fast as the first half of the fiscal comes to a close. The regulatory body will be created through an act of Parliament. Delay in ironing out the above issues could prevent a smooth roll over into the deregulated environment or possibly delay the entire energy sector reform schedule.

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