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Oil at $145 and Indian Oil Companies In Danger


Oil refineries are fighting a political battle now – of not being allowed to export their products and having to support a “managed” price of petrol and diesel to offset the losses to public oil marketing companies.

With Oil at record highs one might think companies like RIL, ONGC which own refineries are in great shape. Unfortunately with the political scenario unwinding, it does not seem so. The Samajwadi party, which is expected to replace the left in the ruling coalition, has demanded that oil refinery outputs be banned from exports and that a “windfall” tax be applied on their profits.

The windfall tax is so stupid I find it difficult to even talk about it. We have to have a free economy and the ability to make unlimited profits without people questioning the quantity. Jeez, who cares what quantity of profits one makes – the more the better, that’s the way this country will grow! Instead you should tax the software sector because they don’t bloody get taxed at all. For oil companies in SEZs I support full taxation, but no “excess” taxation.

And why is the export ban stupid? India has one of the few refineries outside the US that can process the heavy sour crude produced by the middle east. To ban petrol and diesel exports is to simply create a higher demand for light sweet crude outside India, because of the drop in supply of the processed fuels worldwide. This results in a higher crude price, and we largely import crude, so uhm where is the benefit again?

Second: These companies aren’t around for charity. If you push them to the wall they will scale down or shut operations to counter regulation. As simple as that. Now you don’t get any fuel cheaper either, and crude prices still go up and lots more people lose jobs and the SP feels like an absolute dolt. Amar Singh should be made to campaign from Jamnagar.

Third: We’ll lose a lot of the export revenue. I don’t have the figures but I think oil refinery output exports are bigger than the whole software sector. Are we ok losing that much dollar inflow, when there is a net dollar outflow from FIIs and the RBI is holding on to their sacred dollars for dear life? Something has got to give.

But these are rational arguments. Politics is rarely rational. And things are going to get much worse as elections come on.


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