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Oil crisis and controversies in 2008

By Ammar Zaidi in New Delhi
December 30, 2008 15:12 IST
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An oil shock, reminiscent of 1979 crisis, nearly derailed Asia's third fastest growing economy as policy-makers spent more time fire-fighting controversies resulting from the absence of a coherent energy plan than taking decisive steps.

If Iranian revolution sent oil shock waves worldwide almost three decades ago, it was speculators ruling the markets in 2008, driving prices to a record high of $147 a barrel on July 11. Seventy-five per cent import-dependent India scrambled for response as the rally resulted in a sharp rise in inflation and threatened to undo the gains from a 9 per cent GDP growth rate.

With domestic fuel pricing policy in doldrums, the Congress-led government shied away from taking any stringent action to keep its poll hopes alive in an election year. But when bankruptcy of national oil companies from selling fuel-below-cost looked imminent, it pieced together a for-the-time being response, raising petrol, diesel and domestic cooking gas prices by highest ever rates but no where near the required hike.

Soon, the bubble created by speculators busted when more than clear signs of recessions in the US and Europe emerged, sending crude oil prices tumbling. Crude prices fell by two-thirds ignoring intermittent output cut by oil cartel OPEC, and once again exposing absence of clear energy policy back home.

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After "observing" the movements for weeks, petrol and diesel prices were reduced, but an opportunity which should have been used to free fuel pricing from administered control was withered away in the absence of a decisive leadership. The spike in international oil prices sent jet fuel prices skyrocketing, bringing down the aviation industry, which resorted to job cuts to keep companies alive.

The already strained state-owned fuel retailers, who projected revenue losses double than the entire nations fiscal deficit, were asked to bailout the airlines by not pressing for payment of defaulted fuel bills.

The decision came in for some sharp criticism, but the government ignored all of that and also the fact that borrowings of the retailers had quadrupled.

The nation must thank its stars that terrorists did not choose to attack any of the several offshore installations and refineries and pipelines, which would have lead to a catastrophe as many of them are unmanned, leave alone guarded.

After the Mumbai terror attacks, the government scrambled to offer some sort of a response to such attacks but it remains to be seen if terror strikes can totally be prevented.

Like the previous year, controversies kept the sectors pot-fired. First among the series was created by finance ministry when it said income-tax holiday was available only for oil producers and not for natural gas even though the two may occur in the same well and have been clubbed together in various Acts.

The industry looked for answers why environment-friendly fuel would not get tax breaks while the one that had large carbon footprint was showered with generosity. This lead to postponement of bid date for the nations largest auction of exploration acreage three times and when it finally opened without any changes in tax rules, the biggies were absent.

Then, the ambiguous policy on pricing of natural gas from fields awarded under New Exploration Licensing Policy (NELP) spelt the warring Ambani brothers continued to grab headlines.

The younger Anil Ambani, who is seeking gas from Mukesh's Reliance Industries at rates that would be considered subsidised in the present regime, chose to highlight that government approval is needed only for valuation purposes and companies are free to sell gas at lower price.

RIL on the other hand pressed for the government-approved price being the sale price. The issue is pending before the Bombay High Court.

While all this was happening, the ministry decided to take over marketing of gas from privately operated Panna/Mukta and Tapti fields, lying in western offshore. No reason for change of heart two years after the field operators were given the marketing freedom was assigned.

Also, Cairn India which gave the nation its largest onland oil discovery in more than two decades, found itself in the midst of yet another controversy as different government arms differed on give it permission to lay a heated pipeline to transport waxy crude from Rajasthan to refiners in Gujarat.

This permission finally came after months of debate but soon after Rajasthan The government refused to give it rights to lay the pipeline. The matter is still a hang fire.

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Ammar Zaidi in New Delhi
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