PSU Watch | Oil price spike brings back subsidies

Jan 02,2023

A spike in international oil prices in 2022 brought back indirect fuel subsidies in India, but the nation won at crude diplomacy as it refused to succumb to western pressures and continued to buy oil from the cheapest available source.

‘Market experts called oil subsidies as a paradox’
Oil Minister Hardeep Singh Puri has maintained that the government had not ordered any freeze on fuel prices and state-owned companies like IOC, BPCL and HPCL had acted as “responsible corporate citizens” in not raising prices in step with cost.

In the same breadth, he also talked about compensating them for the losses, a statement that market experts said was a paradox. They said if the government had not ordered a freeze and oil companies acted on their own violation, why should taxpayer money be given to them as subsidies?

But subsidies appear to have made a comeback. The government has already sanctioned Rs 22,000 crore to make up for losses the three firms incurred on holding cooking gas LPG prices in the past two years and a similar role is expected for petrol and diesel in the coming budget.

India saved an estimated Rs 35,000-40,000 cr in foreign exchange outgo while importing oil from Russia
Puri, however, scored big when he guided India’s response to western curbs on Russia to punish it for the war in Ukraine. Despite the pressure, India increased imports from Russia, making it its top oil source towards the year’s end. With Russian oil being available at discount after being shunned by some western countries, India saved an estimated Rs 35,000-40,000 crore in foreign exchange outgo.

Also, Puri’s push ensured that the target of mixing ethanol in petrol was achieved ahead of schedule.

Besides petrol and diesel, the global energy prices spike also meant a rally in CNG and piped cooking gas prices, prompting the government to set up a panel to review how domestically produced gas is priced. The panel recommended price caps but more importantly indicated that city gas should be subsidised to ensure it costs lower than petrol and diesel.

That recommendation is being processed by the government.

Global disruptions in energy markets & the war in Ukraine added impetus to the push for renewable energy
Energy expert Daniel Yergin said the global disruptions in energy markets and the war in Ukraine have added impetus to the push for renewable energy and the drive toward net-zero carbon emissions.

“Yet, even as the global consensus around the energy transition becomes stronger, the challenges to that transition are also becoming clearer,” he said.

In addition to the uncertain pace of technological development and deployment, four issues in particular stand out in return of energy security as a prime requirement for countries, lack of consensus on how fast the transition should and can take place, in part because of its potential economic disruptions, sharpening divide between advanced and developing countries on priorities in the transition, and obstacles to expanding mining and building supply chains for the minerals needed for the net-zero objective.