The Indian Oil Conundrum

We all know that the govt of India heavily taxes crude oil and subsidises fuel prices thru a complex method of pricing and price control such that we get very cheap rationed Kerosene at a 10th of the original cost, relatively cheap Diesel and expensive Petrol so as to attempt keep the population happy and inflation low.

The older system of Oil pool Account has been scrapped for a controlled Oil prices thru diktats to Oil cos.This has made massive distortion in Oil Prices in India visa vis the International Oil prices. The FM/ PMO and the Cabinet fix oil prices distorting them and reducing profits of oil cos.

There are many negatives here .

1. The Govt as a Promoter of most of the Oil cos is the worst promoter an average shareholder would wish for. It would be fine if it was 100% govt owned but alas most PSU oil cos like ONGC , GAIL , HP, BP etc are not and we shareholders ie general public MF investors and Taxpayers alike suffer.

These companies especially ONGC compete in a global arena with giants like Shell, Chevron, Total and others. The strength and liquidity of the companies suffers tremendously and they are weakened in comparison to international cos.Their future plans and capacity addition plans go for a toss, which can be destructive in the longer run.

2. The share prices remain stagnant or underperforms the indices, making Investors loose interest and feel cheated as they have to bear the subsidy burden decided by the Govt.

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eg. Compare Share price of Ongc and Reliance (post split) to get an idea of what im talking about.

3. The company looses out on good staff  as most highly skilled staff is poached by competing international cos as both salaries and incentives are paltry in comparison to more profitable competitors, and the people that remains resort to  to strikes and sit ins overall debilitating the company’s growth potential and day to day running.

If steps to change this situation wont be taken soon this will lead to a serious dent of our country’s oil and energy security.

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