Oil146;s not well

That the prime minister had to intervene and offer better salaries for oil PSU officers to call off their strike is not a solution but an indication of the problem. The threat of the strike should be a wake up call 8212; unlessthe oil sector is reformed, unless the super-dominance of PSUs, whose staff are unionised and practise industry-wide collective bargaining, is reduced, this most vital economic sector could always be held to ransom by a few people. Prime ministerial munificence can8217;t be an alternative to sectoral surgery. Bank officers and Airports Authority of India employees have been on strike in the recent past. They have shown the negative effects of continuing government presence in economic activities that require a modern, private sector ethos-driven dynamic. If closed airports or banks are bad, an oil sector shut down is a catastrophic scenario. So some serious thinking is required.

As long as government remains the majority, and for managerial purposes, the sole owner of oil PSUs, collective bargaining can always be a blunt instrument in the hand of unions. The ideal solution is of course that the oil sector becomes fully private thus making the issue of industry-wide collective bargaining irrelevant. But as an interim measure every oil PSU should be allowed to fix pay scales. Of course, allowing oil PSUs such freedom may not go down well with the petroleum ministry; remember the spats between oil PSU chiefs and petroleum ministers in the past on other related issues. But politicians with a problem are precisely the problem.

The oil sector has seen no serious reform. As Vikram Mehta, chairman, Shell, India, and our columnist, pointed out in an op-ed page commentary on Monday, subsidised prices are not only forcing oil PSUs into losses but also affecting private sector players in oil retail. Private oil retailers do not get oil bonds 8212; the government8217;s peculiar solution to non-market pricing 8212; and for them the retail business may well become unviable. Therefore, when oil PSUs are shut because of a strike, end users don8217;t have the assurance of a large private oil retail sector. The same story of disincentives is true of private players in the LPG business. Oil sector reform is held back in the name of 8220;people8221;. How would 8220;people8221; react in the case of an oil economy shutdown? That8217;s the real politics of oil policy.