Centre ends 37-year-old policy on oil purchase

Frees oil PSUs from government influence in choosing suppliers.

New Delhi: The Union Cabinet on Wednesday gave its approval to replace the existing policy on crude oil import by state-run oil companies and vest them with power to evolve their own policies. This will provide a more efficient, flexible and dynamic policy for crude procurement, eventually benefiting consumers. The Cabinet has also approved a fiscal deficit target of three per cent for states, as recommended by the 14th Finance Commission (FFC) for the 2015-20 period. FFC has adopted the fiscal deficit threshold limit of three per cent of Gross State Domestic Product (GSDP) for states.

It approved recommendations with two flexibility options. FFC provided additional headroom to a maximum of 0.5 per cent over and above the normal limit of three per cent in any given year to states that have had a favourable debt-GSDP ratio and interest payments-revenue receipts ratio in the previous two years.

The existing policy for import of crude oil was approved by the Cabinet in 1979. State-owned firms like Indian Oil Corp (IOC) have traditionally been allowed to source crude only from national companies of oil producing nations. On May 21, 2001, the government permitted refiners to buy oil from top 10 foreign firms.
“While the current policy has ensured that collective energy needs of oil PSUs are consistently met over the years, the policy needs to evolve with the changing times. With the changing geopolitical environment, the crude oil import policy needs to be modified to bring it in tune with current needs,” said a statement issued after the Cabinet meet.

It said that the current market practices for purchase of crude oil on spot basis also need to be adopted to compete effectively in the market. The current policy has certain limitations and restrictions in this regard, which limit the potential sources and methods of procurement. “The Cabinet has approved that the oil PSUs will be empowered to evolve their own policies for import of crude oil, consistent with CVC guidelines and get them approved by the respective Boards. This measure, which is in keeping with the principle of Minimum Government Maximum Governance, will increase the operational and commercial flexibility of the oil companies and enable them to adopt the most effective procurement practices for import of crude oil,” said the statement.

( Source : Deccan Chronicle. )
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