Prime Minister Narendra Modi Monday sought a review of payment terms with major oil producers as part of the NDA government’s strategy to help counter a depreciating rupee. He was addressing oil ministers and chief executives of both global and domestic oil companies at an event here.
Modi, according to an official statement issued after the meeting, “requested for review of payment terms so as to provide temporary relief to the local currency”. The rupee has fallen 14.5 per cent this year, making oil and other imports more expensive. In the meeting with leading global CEOs of oil and gas sector and ministers from Saudi Arabia and the UAE, Modi made a strong case for a partnership between producers and consumers in the oil market as it exists in other markets. “This will help stabilise the global economy which is on the path of recovery,” he said.
Rising crude oil prices have expanded India’s oil import bill, resulting in higher current account deficit and throwing up a range of macroeconomic
challenges. An adverse impact on the twin deficits — fiscal and current account deficit — will have a resultant spillover impact on the consumption and investment behaviour in the economy as well as on monetary policy trajectory.
Opinion | A diplomatic blind spot
India, the world’s third largest oil consumer, imports over 85 per cent of its oil requirements. With the rupee having depreciated sharply over the last couple of months, India has been seeking better payment terms, which could include a part of import payments being made in rupee. The PM’s remarks come in the wake of escalating tensions between US and Venezuela with the US seeking an end to all imports of Iranian oil by early November.
With Saudi Arabia Oil Minister Khalid A. Al-Falih and a UAE ministerial representative listening, Modi, at his third annual brainstorming with the chief executives of top global and Indian oil and gas companies, underscored how crude oil prices at a four-year high were hurting global growth, as per a PTI report.
Sources privy to the deliberations said Modi also asked chief executives why no new investments in oil and gas exploration and production are coming to India despite the government implementing all suggestions they made at the previous such meeting. The meeting was centred around boosting investment in upstream oil and gas production and how oil should be reasonably priced for both consumers and producers. OPEC accounts for around 40 per cent of global production. The grouping’s decision in June to ramp up production by around 1 million barrels per day (bpd) came in the backdrop of calls from the US, China and India to help moderate prices.
The official statement issued after the meeting said Modi noted that “the oil market is producer driven and both the quantity and prices are determined by the oil-producing countries”. “Though there is enough production, the unique features of marketing in the oil sector have pushed up oil prices,” it said quoting the PM. Consuming countries, he said, face economic challenges like serious resource crunch due to rising crude oil prices.
Also, oil producing countries should channel their investible surplus to pursue commercial exploitation of oil in developing countries, he said stressing on technological cooperation between producers and consumers.
“The Prime Minister asked Al-Falih what his cost of oil production was and why prices were rising so much. He said my cost is very high and if oil price is $40-50 (per barrel), we will start losing money,” Vedanta Group Chairman Anil Agarwal, who attended the meeting, said. “To this I said that my fields (in Rajasthan) are much worse than the oil-rich ones in Saudi Arabia but my cost is just $6 per barrel.”
Later, speaking at the India Energy Forum, Saudi Oil Minister said Modi raised the issue of “consumer pain” from high crude oil prices. “We heard it today loud and clear from prime minister (about consumer pain),” Al-Falih said. He, however, said the “pain” would have been “much louder” but action by Saudi Arabia, the world’s largest exporter of oil, to invest in creating spare capacity has cushioned price shocks. “Prime Minister cautioned producers like myself not to kill the hen that lays the golden egg,” he said referring to consumers as the golden hen.
Speaking at the same conference, Oil Minister Dharmendra Pradhan said India is “facing severe headwinds from rising oil prices” which have risen by 50 per cent in dollar terms and 70 per cent in rupee terms in the last one year. The meeting, also attended by Finance Minister Arun Jaitley and NITI Aayog vice chairman Rajiv Kumar, was called to discuss the emerging energy scenario particularly ripples from US sanctions on Iran and volatile oil prices threatening growth.
At the meeting, Modi sought the role of private participation in distribution in the gas sector and underlined the government’s policy initiatives: liberalisation in gas pricing and marketing; open acreage licensing policy; early monetisation of coal bed methane; incentives for discovery of small fields and seismic survey at a national level. BP CEO Bob Dudley, Total head Patrick Pouyanne, Reliance Industries Director P M S Prasad and senior officials from Saudi Aramco, IHS Markit, International Energy Agency and Rosneft were among others who attended the two-hour long meeting.