Export parity price will lead refineries into red: Moily

Admonishing the export parity pricing model for fuel products, Oil Minister, Veerappa Moily told CNBC-TV18 that if adopted this pricing model would lead all refineries in to red and no new refineries would come up.

It must be noted that just a month back Finance Minister P Chidambaram had strongly stated that oil marketing companies will get only Rs 20,000 crore from the government and Rs 60,000 crore from upsteam companies. However sudden depreciation in rupee is likely to severely impact OMCs under recovery.

Moily stressed that he had raised concerns relating to export parity pricing to the Prime Minister Manmohan Singh. " Prime minister having intervened and Kirit Parikh committee being constituted, the recommendation of the Kirit Parikh committee will have weightage," Moily said. However he added that if Kirit Parikh Committee also recommends going for export parity pricing then refineries will be the biggest losers.

Kirit Parikh Committee report is expected in two-three month. Moily argued that export parity pricing is not suitable for India as the country meets 80 percent of its fuel requirement through import.

"If you want to make it only 100 percent export then the companies will go red, almost all the refineries will go red, and no new refinery will come up," Moily said.

Below is the verbatim transcript of Moily's interview

Q: Let me start by asking you about the impact of the depreciating rupee and as far as global crude prices are concerned, there was relief on that front because global crude prices have been coming off and have been stable between USD 102-104 per barrel but the depreciating rupee has offset all the relief that you enjoyed on account of the fall in global commodity prices. We have been speaking with oil marketing companies (OMCs) and they are clearly worried at this point in time about the impact, what is your own assessment of the rupee's impact as far as the under-recovery is concerned?

A: It is a matter of great worry and the worst hit are oil companies. We have to stabilise this because now by every rupee depreciated, all companies put together we lose about Rs 9,000 crore. It is a disaster. We need to address it. Hopefully I think within two-three days time, rupee will stabilise.

Q: Have you had any conversations with the finance ministry on the possible options because you are clearly one of the most impacted parties, has there been any conversation with the finance ministry on what the repercussions of depreciating rupee could be, how oil marketing companies could be spared?

A: Yes we are in constant dialogue with them. That is why I am now reassured that within two-three days time, rupee will stabalise.

Q: What is the basis of that reassurance?

A: I think the Reserve Bank of India (RBI) can do some mid-course corrections, and the number of measures government has taken particularly on attracting foreign institutional investors (FIIs) and also the foreign direct investment (FDI) would also help. The investors' confidence will rise. Once the investors' confidence rises then possibly the rupee will stabilise.

Q: You are saying that you have been given an assurance by the finance ministry that steps will be unveiled within the next week or so that will perhaps boost foreign investor interest into the country and hence stabilise the rupee so you have been given that assurance because that is the sense that we are getting as well?

A: Ultimately, the fundamental of the economy of this country is still strong. To be very frank, this is only an aberration which can take place from time to time. For which at sometime we must have a structural change with regards to certain financial policy, but at the same time, nothing can substitute particularly for attraction of the FIIs and FDIs and also inspiring the confidence among the investors.

Q: While what the government finally does in terms of FDI cap for bringing in more FII money into the market is a separate story but if we see the volatility in the rupee continue, what is the likely impact as far as the subsidy is concerned. Rs 80,000 crore is what was earlier estimated, oil market companies saying already that the subsidy has gone beyond Rs 1,00,000 crore, if this trajectory for the rupee continues, how bad is it likely to be?

A: The under-recovery will increase. Again we have the problem, the finance ministry wants export parity price and we want trade parity price, which was in practice. Last year's under-recovery has been reimbursed by the finance ministry.

Q: Export parity price?

A: No, I am not agreed on that.

Q: Finance ministry believes that a decision has been taken as far as export parity is concerned?

A: Now fortunately, the prime minister intervened. In the presence of the finance minister, I presented, by that time I had already appointed Kirit Parikh Committee then I told the finance minister that you go through the reference which we have made and you can have your representatives in the Kirit Parikh Committee. Now the proposal has come from them. They want that export parity matter should also be included in their terms of reference. So Kirit Parikh Committee will look into it. Yesterday we constituted the committee and revised the terms of reference and maybe that of course we want the report to come within two months, possibly two-three months time, the report will come thereafter we will go in for that. That will address the under-recovery question.

Q: Let me talk about the under-recoveries and Kirit Parikh report is still as you yourself pointed out two-three months away, the finance minister has made it very clear, he has categorically stated, I am not going to give oil marketing companies anything more than Rs 20,000 crore, Rs 60,000 crore will come from upstream companies, I will only give Rs 20,000 crore. If your under-recoveries continue to move in the trajectory with the depreciating rupee, are you going to be able to convince the finance minister?

A: I think you are only reiterating the statement which is made by the finance minister before prime minister intervened in the matter. Prime minister having intervened and Kirit Parikh committee being constituted, the recommendation of the Kirit Parikh committee will have weightage. Whatever Kirit Parikh committee recommends I am prepared to go for it.

Q: Hypothetically, if he three months down the line says export parity is the way ahead, will the oil ministry agree?

A: You must know the history of this parity prices. Rangarajan Committee, Kirit Parikh Committee, all these committees had recommended trade parity. Because, what is our export. 80 percent we are importing, not exporting. When we were importing, the formula was 80 percent import price and 20 percent export price that is how the combinations were done. If you want to make it only 100 percent export then the companies will go red, almost all the refineries will go red, and no new refinery will come up.

Citra Rasa