Biofuel-averse state oil companies get tough love in the Indian Government's 2010-11 Budget
By Biofuels Digest Asia editor Joelle Brink
In India, the state oil companies were discovered to have systematically defied the government’s biofuel blending mandates with the help of paid insiders in the oil ministry. As a result the government not only lost face but had to deal with public interest law suits by environmentalists, doubts about its capacity to carry out its renewable energy policy, a breach of trust such that three government ministers had to be sent out to negotiate the price of sugar for ethanol producers, and Prime Minister Singh vowed to prosecute every one of the non-compliant companies.
Now it’s the oil companies that are feeling the pain. In its 2010-11 budget, released yesterday, the government slapped them with excise taxes and duties worth more than $400,000 in government revenue, as well as the surprise announcement of new petrol and diesel taxes to take effect the same day at midnight. Petrol prices rose by Rs 2.71 a litre and diesel by Rs 2.55 a litre.
For the government it was a good time to strike, with strong growth in the economy, food prices falling, and new pro-poor policies in the budget to cushion the impact on ordinary Indians. It was a bad time for the oil companies, which had been lobbying the government to decontrol oil prices and allow them to float in sync with international markets. Prime Minister Manmohan Singh had earlier ordered the oil companies to submit their books to the finance ministry for a full review to determine their losses from selling domestic and vehicle fuel below cost in 2009. They were duly compensated and their financial records were returned.
Culture Clash
India’s state-owned oil companies, including Indian Oil, Bharat Petroleum, ONGC and Hindustan Petroleum, are some of the largest players on the Fortune 500 and Global 500. They participate in the oil and gas trade industry associations and trade global oil and gas blocks and futures alongside ExxonMobil and Royal Dutch Shell. They have also bought large tracts of land in India ostensibly for biofuels production. However, unlike their private sector counterparts, they are underwritten by, and ultimately responsible to, Indian taxpayers. In the end, the state oil companies will have to concede to the government because they are part of it, unless the government chooses to disinvest its majority stake, which it has so far shown no sign of doing.
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Category: International
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