New crude import policy for spot buys soon

The new crude import policy will enable the state-run oil refiners to have a common procurement system which will help get better prices Source: PTI

The Minister of State for Petroleum and Natural Gas (Independent Charge), Shri Dharmendra Pradhan addressing at the Seminar on “Oil and Gas”, during the Make in India Week function, in Mumbai.

The Oil Ministry will soon come up with a cabinet note on the new crude import policy for spot crude purchases by state-owned refiners, doing away with the long-followed tendering process, Minister Dharmendra Pradhan said in Mumbai on Monday. He said new crude import policy will enable the state-run oil refiners to have a common procurement system which will help get better prices, which in turn will bring down cost for end-consumers. “Soon, we will be moving a Cabinet note on crude import policy,” Pradhan told reporters on the sidelines of the ongoing week-long manufacturing summit under ‘Make in India’. Observing that spot purchase can help consumer massively, he said the mechanism would involve streamlining the technologies to bring in more transparency. “In the name of vigilance, our consumers should not be deprived of cheap oil,” the minister added. When asked whether this will also mandate a common trading platform for state-run oil refiners, he said it is up to them to decide how to do their procurement. “The proposed trading desk can be set up by all state-owned refiners together or they can choose their own system, and the ministry will give the broad policy. “According to my information, we are the only country in the world opting for tendering, despite being the third largest consumer (of) oil. The government will come up with a new policy very soon. Broad policy guidelines... how smartly they procure is up to the companies,” Pradhan said. The issue of a spot procurement policy has been pending for long since the early days of the UPA, and if implemented will give the state-owned refiners the flexibility to negotiate and take advantage of prevailing low price. Under the prevailing tendering route, companies normally pay higher prices and incur delays as they book nearly three months in advance. Following the steep fall in global crude prices, the Oil Ministry has encouraged oil PSUs to up their spot buys to take advantage of the market conditions. Following this, the PSUs stepped up spot purchases which used to be normally 20% of their total requirement to up to 30%. Pradhan has been vocal in calling for an Asian discount against the Asian premium forced on the country and other nations in the continent by Opec. The Asian premium refers to the higher prices to the tune of $2-3 a barrel which the Brent basket (which sets the Asian prices) charge, over the Nymex (American prices) basket. Pradhan, however, said he was not advocating a trading desk per se, but is all for better inventory management that helps reduce unnecessary losses from procuring crude months in advance. Currently, oil firms have a centralised procurement system, which requires them to take permission from the ministry on a periodic basis to go ahead with crude purchase. Normally, companies take almost three months to start processing crude after concluding the tendering process. For instance, if IOC closes a tender for May loading, then the tender would be concluded in March and it can begin processing only in early June. Given the rate at which crude oil prices are decreasing now, there is no way how the companies that follow the tendering route can avoid inventory losses at all. But, if they adopt spot purchase they can get better prices and faster delivery too, said industry officials. When contacted, B K Namdeo, BPCL director for refineries, said this is the best time to have a common crude trading platform. “Ideally, it should have been in place already. We hope if the Cabinet approval comes in shortly, the platform can be operationalised from the April quarter itself,” Namdeo told PTI. The biggest advantage of spot purchase is that it can greatly help companies arrest inventory losses, which in the September quarter ran into tens of thousands of crores. Even in the December quarter, all the oil refiners reported heavy losses on the inventory front, though much less than the previous quarter. Namdeo said that initially the oil PSUs – IndianOil, Bharat Petroleum and Hindustan Petroleum – would together do it before moving separately when they would take the help of a consultant to set up the systems. However, he refused to answer whether this will bring their margins down. “Definitely, we will be able to capture opportunity in the market, negotiate, take advantage when there are any distress cargoes available when you go through,” Namdeo said. The new crude import policy was in the offing even during the previous government, and it went through a long process of consultation as refiners tried to find a way around the issue of strict vigilance rules that might come in the way of having a trading desk and initiate real time purchases. At present, tenders for spot cargoes, apart from internal clearances, have to get the ministry’s approval. Apart from national oil companies, PSUs are allowed to buy from only a select number of MNCs. The country, which has a refining capacity of 230 million tonnes per year against the domestic demand for 110 mt, imports close to 80% of its crude, which in 2015 rose 4.6 % to 197.43 mt. International Energy Agency report has estimated the domestic oil market is slated to grow the fastest among the large consumers to 165 mt by 2025 and to 550 mt by 2065.

February 16, 2016 | 02:17pm IST.

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New crude import policy for spot buys soon

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