50% domestic procurement plan: Petroleum ministry purchase policy runs into rough weather

Commerce department says proposed purchase preference policy violated the WTO guidelines

Written by Amitav Ranjan | New Delhi | Published:November 27, 2016 1:52 am

The Petroleum Ministry’s plan to infuse 50 per cent domestically manufactured content in all public sector oil and gas contracts has run into rough weather with the Commerce Department saying that proposed purchase preference policy violated the WTO rules. “Under the WTO National Treatment on Internal Taxation and Regulation, any discrimination to imports in comparison to domestically manufactured goods is inconsistent with the obligations undertaken by the member countries, including India,” commerce department commented on the draft policy.

Through purchase preference, petroleum ministry wanted all public sector undertakings (PSUs) to specify a certain percentage of required domestic content in supplies of goods and services while keeping the contract open for bidding by all — those providing local content product as well as those supplying pure imports.

However, if the price quoted by a bidder — foreign or domestic — was within 10 percent of the lowest bid and met the stipulated domestic content norm, he would get purchase preference provided he matched the price offered by the lowest bidder. In case of lowest bid with stipulated domestic content, there would be no preference option.

Commerce department said that though WTO rules provided an exception for PSUs, the exemption was limited for products purchased for “immediate and ultimate consumption in governmental purposes and not otherwise for resale or use in the production of goods for resale”.

Agreeing with this view, the petroleum ministry cautioned that “though procurement/purchases by PSUs may be considered as government procurement, it would be difficult to establish that the PSUs are not using the procured goods and services for the purpose of their commercial operations”.

Voicing its uncertainty over the fate of the proposed policy, the ministry said: “A study of the WTO provisions indicates that in case of procurement of services, there may not be any major issue of violation. As regards procurement of goods, the jury is still out.”

It attempted to justify the policy on grounds that it did not discourage competition nor provide price preference, but

Article 17 of the WTO pact says that even state enterprises shall make purchases “solely in accordance with commercial considerations, including price, quality, availability, marketability, transportation and other conditions”.

On January 27 this year, petroleum minister Dharmendra Pradhan had announced the purchase preference policy to promote domestic manufacturing in PSUs annual capital expenditure at Rs 90,000 crores. He had expected the policy to be rolled out in the ongoing financial year 2016-17.