NEW DELHI, March 23: Despite Petroleum Minister V Ramamurthy's brave assurances today on how the dismantling of the administered price mechanism (APM) would begin on schedule (starting April 1) the process appears to have run into serious trouble. With the Government already starting to make exceptions to the phase-out rules, to protect nationalised oil companies, the entire process may also get hit in the bargain.Over the last few weeks, ministry officials have been closeted with their counterparts in the public sector oil companies, trying to thrash out vital details pertaining to the APM phase-out. While the Government is yet to take a final decision on the matter, it appears certain that it is likely to protect the interests of the nationalised oil companies.For example, the decision to link prices of all products (except for five including kersone, petrol and diesel) would have implied a sharp fall in local prices - globally, the prices of products like naphtha, for example, have fallen by closeto 30 per cent. A similar fall in local prices, however, would have meant that the profit margins of the existing oil companies would have fallen sharply. Currently, under the APM, oil refining companies such as IOC are assured a fixed post-tax return on their investments.These companies are arguing that a sharp fall in their margins would make their operations unviable. In the event, since they cannot be allowed to shut operations, the Government is likely to allow them some cushioning. So, they will not be forced to reduce their prices to global or import-parity levels immediately.While prices of naphtha, for example, have fallen by around a third, domestic producers will probably be allowed to charge higher prices. That's bad news for users of petroleum products who were expecting sharp price cuts soon, but who cares?The Government has also decided to give a similar cushion to the oil producing companies, ONGC and OIL. Currently, both get a price of around $ 12.5 per barrel. This has been fixed onthe basis of a fixed post-tax return on their investment. Under the new rules, starting April 1, they would have got an amount equal to 75 per cent of the global price. Given that global prices are quite low, this would have meant that ONGC and OIL would have got paid less than this. ONGC chief B C Bora confirmed to The Indian Express earlier they would be paid a price linked to the global one, or the existing one, whichever was higher.
