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Government allocates 40% of initial output of KG-D6 to power sector The government has confirmed allocation of 40 percent of initial gas output from Reliance Industries' eastern offshore KG-D6 fields to the power sector. The EGoM had previously decided that the gas from KG-D6 will have to first meet the fuel demand of urea making fertiliser plants.
Our view is that this quota based allocation of gas by the government has killed the market for gas even before it could develop. This mechanism will also have repercussions on the downstream industries like power with consequent climate change implications. India is launching its eighth round of bidding for exploration blocks under the New Exploration Licensing Policy (NELP) but uncertainty regarding the pricing and marketing of gas still remains. With the setting up of the Natural Gas regulator one would expect that the pricing and marketing will be regulatory decisions but as with other regulatory mandates in other sectors these too are compromised by government interventions. In our view the government should do away with national allocation priorities and quotas (as was indeed the original reforms mandate under NELP).
IOC may get red mark in annual report card
Indian Oil Corporation (IOC) is on the verge of reporting its first-ever annual loss next month. It is a result of selling fuels below cost at a time when global oil prices hit a record high. IOC and other state-owned oil refiners, which are forced to sell fuel at government-determined rates, were hit hard last year, as their prices could not keep pace with the steep rise in international crude oil prices.
Our view is that the government may regulate markets and intervene in determining prices but that intervention has to be done with long-term policy objectives in mind that seek to sufficiently incentivise producers rather than be tuned to narrow objectives of keeping subsidy bills as low as possible and hurt the refinery companies which have not control over their retail prices Subsidy to fertilizer industry is given as the difference between the prices and the costs. However, when input cost rose last year the government hesitated to raise fertilizer prices. As a result government is paying huge subsidies to fertilizer industries. The government in its efforts to keep fertilizer subsidies down, tried to keep input prices as low as possible. Thus, petroleum industry suffered as their input prices were also increasing, but they failed to see proportional increase in their selling prices.