Tuesday, September 26, 2006

//Dil Se Desi// Lalunomics Of Yo-Yo Trading In Petroleum Products

Lalunomics Of Yo-Yo Trading In Petroleum Products

 
Dear Sanjay,
You have again come in aid of Reliance the top thug of India and needlessly dragged communists in to arena when you know that Murli Deora and another petroleum minister are on the payrolls of Ambanis and the government is most corrupt and incompetent.
 
Lalunomics is now taught in IIM-A. So I would like reply in Lalunomics.
 
Suppose you are operating a dairy industry and production of milk products are;
 
Assuming your daily through put is 100 mt and milk processed is 90mt and butter produced is 3 mt. And demand is 80 mt of milk, 4 mt of butter.
 
First Option To match production to demand, you can increase the number of Buffalos and reduce the number of cows.
Second option is to export 10 mt of milk and import 1 mt of butter.
Third option is to import 15 mt of milk and 2 mt of butter and export 25 mt of milk and 1 mt of butter.
 
You are supporting third option. How can you justify 29% of trading in petroleum products.
 

Data of Petroleum Products For April – December2005,

Figures in thousand Metric Tons

 
S.N.
Name of Items
Consumption
Production
Imports
Exports
1
L.P.G.
7431
5428
2177
36
2
Petrol
6544
7575
425
1465
3
Naphtha
7904
10510
1919
3291
4
Diesel
29662
34767
2
5795
5
ATF
2356
4439
751
2024
6
Kerosene
6993
6721
766
88
7
Lube/Greases
615
466
1049
698
8
All Items.
78781
88557
8008
14837
 
It is scandalous IRS 75,000 crores or so was spent on export and imports of petroleum products. Against requirement of 110 million tons refining capacity we are going to have 175 million tones refinery. You have not explained why production of gas wells couldn't commence in four years that would have drastically cut petroleum demand. Then we would perhaps required 100 million tones refining capacity.
 
You are irresponsible in defending Ambanis because in your perception of business Ambanis have birth right to loot and plunder and corrupt our government. All the companies and businesses have come up with public money.
 
While average LPG production for all refineries is 5% but Reliance Refinery produced over 10% of gases and consumed most of it.
 
Against PSU average of 23.4% in 2004-05, Reliance production of LPG and light distillate is 40% and Reliance produced 3.2 million tones of Gases and 9 million tones of light distillate. The import of 2.36 million tones of LPG could have been avoided or minimized had Reliance used Naphtha as fuel in the Petro-Chemical complex and for operating gas turbines. Imports of products in 2004-05 full year were 8.872 and exports 17.524 million tones.
 
Use of 2.5 million tones of Naphtha instead of equal quantity of LPG would have reduced trade in Light distillates by at least 5 million tones in full year.
 
Similarly it was found that Reliance produced 14.446 million tones of middle distillates but sold only 1.987 million tones in India. Around 2 million tones was self-consumption of middle distillates so nearly 10 million tones were exported.
 
India could have shut down some refineries producing least percentage of LPG and high percentage of middle distillates to "Match Demand & Production".
 
Can you justify trading of 23 million tones of petroleum products in just 9 months of 2005-06 or 26 million tones in 2004-05?
 
At every stage there is cost in transportation, storage and brokerage and taxes so losses could be Rs.20,000 crores and entirely due the mischief of Reliance.
 
At least $12b could have been saved in new refinery capacity additions had gas fields been operational.
 
Can you explain who runs petroleum ministry, Mukesh or GOI under Manmohan Singh?
 
Ravinder Singh
26-09-2006
 
 

"Sanjay Jadhav" <sanjayjadhav1999@yahoo.co.in>   ---

 
The conclusion:
 
1. With arrival of private sector players not amenable to benevolent dictates of ministry, there is acute need of economic regulator. In this regard reference may be cited to "Approach to Regulation: Options & Issues". This discusses economic regulations of energy, communication & Transport sector. Competition, market, entry of independent players is drunk horse. Riding on it needs lot of skill more than socialistic mindset. Government also need to shed some power to market.
 
2. The numbers hide policy deficiency. Anti-market pricing is as much responsible for losses as export by Reliance.
 
3. The market infected by more 25% of subsidized consumers (Electricity, Kerosene, LPG), is prone to such breakdowns. The vested interests (Joseph Stiglitz), prevent transition to robust market based pricing (anti-DisCom movement of RWAs in Delhi 2005). This also prevent competition and entry of investors (Electricit market, petrol & Diesel). Law & Order conditions and public interests are cited as reasons for not opening the market or prevent entry of private players. The selective opening also throws failures in the process. i.e. opening of free-sale kerosene promotes adultration into petrol. Export by Reliance leads IOC in losses. Opening of cable TV & mobile has left DD & BSNL vulnerable.
 
Do you really think that petrol & diesel users are more in need of subsidy at the cost of taxpayers? That may actually be need of Communist donkeys of India & ruling coalition, rather than consumers. If Reliance is blamed for X amount, the goverments actually collect 10X amount through excise & sales tax. If GoM collected 29% sales tax, certainly Reliance, for that matter IOC/ HP/ BP also, does not earn that much profit. The money collected by MoF is, I presume, at least 3 times the losses accumulated in IOC/ HP/ BP.
 
4. Export incentive is a case apart and shouldered by MoF. How Reliance is responsible for losses in PSU? Is it responsibility of Reliance to save IOC/ HP/ BP from losses? Please clarify.
 
Reliance to exports the products, when prices are unfavorable in local market. But this action is consistent with competition & market. Any economics scholar having studied basic text would anticipate it. Pricing policy should have kept these issues in mind. Highly paid bureaucrats do not want to appreciate this possibility, or conveniently ignore it. Therefore it is futile to blame on Reliance or count on their altriuism, when others chose not to apply their mind. Irrespective of our personal preferences, biases and choices, it will fail to discover right solution.
 
You have blamed on Reliance that it exports the products leading to losses in IOC/HP/ BP and it runs Ministry. Please write what do you expect Reliance to do. Do you want them to give away incentive? not to export? sell products to IOC at loss or perhaps at lesser profit? Please articulate what you expect from Reliance so that we can discuss the feasibility of the ideas.
 
Sanjay Jadhav
 

Yo-Yo Petroleum Products Trade; Rs.20,000 crores/year Loss ©

 
Friends,
For your benefit I have drawn the table of "Petroleum Products Business In April-December 2005.
 
Trade In Petroleum Products at 29% reflects gross mismanagement. It was expected with the commissioning of Reliance Refinery said to be most complex in the world the petroleum products trade to meet India's needs may come down from 17% to 10% if not 7% but it went up to 29% last year 9 months period. Exports of petroleum products alone was Rs.50,979 crores in full year though clear figure is not available for imports but let us assume it as Rs.30,000 crores, so trade was about Rs.80,000 crores.
 
Trade
2002-03
2003-04
2004-05
2005
Apr-Dec
Import
7228
8001
8828
8008
Exports
10289
14620
18211
14837
Consumption
104126
107751
111582
78781
% of Trade
16.8%
21%
24%
29%
 
We can safely conclude that Reliance caused India a loss of Rs.20,000 crores in just one full year 2005-06 due to the incompetence, negligence and connivance of ministry of petroleum.
 
It could also be "Telgi" trick Reliance over declaring exports and cashing on incentives and tax breaks.
 
It is a case of Reliance running the Ministry of Petroleum than Ministry controlling Reliance. 
 

Data of Petroleum Products For April – December2005,

Figures in thousand Metric Tons

 
S.N.
Name of Items
Consumption
Production
Imports
Exports
1
L.P.G.
7431
5428
2177
36
2
Petrol
6544
7575
425
1465
3
Naphtha
7904
10510
1919
3291
4
Diesel
29662
34767
2
5795
5
ATF
2356
4439
751
2024
6
Kerosene
6993
6721
766
88
7
Lube/Greases
615
466
1049
698
8
All Items.
78781
88557
8008
14837
 
Against consumption of 78.78 million tons in 9 months, production of petroleum products was 12.4% more at 88.55 million tons but still India imported 8 million tons of petroleum products necessitating exports of 14.83 million tons. Thus productions and imports were 96.55 million tons but consumption and exports were 93.61 million tons. This left almost 3 million tones unaccounted petroleum products.
 
In 2002-03 India consumed 104 million tones of petroleum products and trade of petroleum products was 17.5 million tones or 17%. But in 2005 trading went up to 29%.
 
Just to illustrate that Refineries can be tuned to produce optimum product mix in 2002-03, Naphtha yield in 26.539 million tones light distillates was 9.180 million tones or 34.5% which in 2005 period was 10.510 million tones in 23.029 million tones of light distillates or 46% and highest proportion over the years is 48%.
 
So even 10% reduction in Naphtha production in favor of LPG and Petrol could be over 3 million tons improvement in product mix to suit consumption needs.
 
In view of surplus Diesel India ought to have promoted "Diesel" cars that give 25% more mileage by not increasing the diesel prices and promoting public transport. India could have saved another Rs.10,000 crores.
 
But there is a disadvantage in this cost savings of Rs.30,000 crores, trading in petroleum products decline would reduce the foreign trade data by $10b-$12b that Commerce Minister Kamal Nath may not like. It would have dented the foreign trade figures by a quarter.
 
Ravinder Singh
Inventor & Engineer
September23, 2006
 

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