NEW DELHI: Domestic producers will be free to sell crude from their fields to government and private refineries from October 1, ending the historical monopoly of state-run refiners over domestic crude.
The decision taken by the Cabinet’s panel on economic affairs, first reported by TOI, is expected to encourage upstream investments by expanding the market for domestic crude, lead to improved utilisation, boost realisation from each barrel and shore up government revenue.
Producers at present can sell crude only to state-run refiners and the Centre allots the quantity for each refiner. The price is calculated according to a traditional formula with Brent as a marker, instead of the global practice of a ‘five-cut’ – or yield of five most-used refined products – norm.
Information minister Anurag Thakur said in 2022, only 71% of the 23 million tonnes of domestic crude produced was refined by state-run refiners.
Former ONGC chairman and director (finance) Subhash Kumar told TOI deregulation will boost revenue of producers such as ONGC as the price will be based on “which crude can yield how much of which products” rather than the production plan of the refiner that hinges on the refinery configuration.
“ONGC may have to take a beating in some crude but overall realisation per barrel could rise by 3-4%. The realisation from Mumbai High crude, which is very good, could go up by 7-8%,” he said.
Deregulation will also allow downstream investments made with particular crude sources in mind to meet their optimum objectives. They will be free to secure suitable raw material, he said.
Better per barrel realisation will also boost the government’s royalty and cess income as they are charged as a percent of the price. Cess is pegged at 20%, while royalty is pegged at 20% for onshore and 10% for offshore production.
The allocation system worked till private entry was not allowed upstream. But it created a market anomaly once the government opened up the sector and private players such as HOEC, Cairn and Reliance, to name a few, entered the arena.
Former petroleum secretary Tarun Kapoor, who is now an advisor to the prime minister, has been pushing for deregulation during his tenure in the oil ministry. A study by Petroleum Planning and Analysis Cell a while ago had also favoured deregulation of domestic crude and projected a 8-10% increase in realisation from ONGC’s Mumbai High crude.