Crisis in Numaligarh refinery

Crisis in Numaligarh refinery

— Subhas Chandra Goswami

Oil refineries are to purchase crude at international price whether it is imported or domestic product. The international price of crude at around 70 US dollars a barrel a year back has jumped to the present level of around 130 US dollars. October 19, 1889 is a red letter day in the annals of petroleum history, when the first gush of commercially viable oil was struck in Digboi well No. 1. But till independence of the country native people around took no interest in this industry. But after independence, specially after discovery of oil fields at Naharakatia, though the oil business was still controlled by the British, people started taking notice of the happenings around and slowly but surely started emotionally attracted to the oil industry. But construction of the first oil refinery under public sector at Barauni and laying of 1157 km long pipe line from Naharakatia to Barauni to carry Assam crude away from Assam was considered by the people of Assam as new form of exploitation. From then on ‘oil’ became emotionally sureharged word for the people of Assam and word ‘oil’ even today touches the inner cord of the people of Assam. It is a fact that the oil refineries at Guwahati and Bongaigaon came through agitation by the people of Assam. Even the last of the four refineries of Assam at Numaligarh is the outcome of an accord signed after a protracted agitation. Under this scenario the people of Assam are naturally concerned at the news of crisis of the “Accord Refinery”.What is the problem of Numaligarh refinery? In fact there are more than one problem faced by the refinery. Let us start with the availability of crude. Today total installed capacity of the four refineries of Assam is 7 MMTA. It we add 3 MMTA capacity of Barauni refinery, which was planned to run on Assam crude, the total production of crude from north eastern region should have been 10 MMTA. Perhaps this was the projection given by some people somewhere to justify the decision to build the fourth refinery at Numaligarh, when the actual crude production was about 5 MMTA at the time of signing the accord in 1995. Ironically the crude production of NE region presently has come down to about 4.5 MMTA. So when Barauni refinery is no more supplied with Assam crude from 2000, BRPL is bringing in RAVVA crude from Andhra Pradesh from 2003, the four Assam refinery including the one at Numaligarh are still short of 1MMTA for full capacity utilisation. As a result these refineries with total installed capacity of 7 MMTA are gasping for breath due to short supply of crude, when economy of scale demands that a modern refinery should have atleast 9 MMTA installed capacity to be economically viable. Did an element of pressure and emotion prevailed over economic consideration in taking vital decision in Assam oil sector?Oil refineries are to purchase crude at international price whether it is imported or domestic product. The international price of crude at around 70 US dollars a barrel a year back has jumped to the present level of around 130 US dollars. This has not only jeopardised the profitability of oil companies but also has put a great stress on the economy of the country, which is importing about 72 per cent of its crude oil need. Earlier even with shortage of crude supply, the Assam refineries did not incur loss due to the Government of India’s Administered Pricing Mechanism (APM) till 1998. The cost plus system also ensured the profitability of the refineries. However from early 1998 the Government of India had gradually dismantled the facilities given to the oil companies through APM and cost plus system. The Government of India did this with an objective to bring in market driven mechanism, because of policy business globalisation. In reality however it did not happen, because presently crude is priced at international level, whereas the product prices are controlled by the government. This is the paradox and this has created problem for oil companies, more so for small companies like NRL.To offset the problems the government allowed 100 per cent excise duty relief to NRL since its inception. However from 2002 refineries at Digboi, Guwahati and Bongaigaon also were offered 50 per cent excise duty relief and unfortunately for NRL, the excise duly relief on products of NRL also was curtailed to 5p per cent. Not we understand that Chief Minister Tarun Gogoi has taken up with the Prime Minister to restore the 100 per cent excise duty relief to NRL.For some years for crude oil supplied by ONGC and OIL to NE refineries, the pipeline transportation cost and Sales Tax were borne by ONGC and OIL. Now it is borne by the refineries. Because of the fact that for oil producing companies the steep rise in international crude price has come as a windall, the oil producing companies should be convinced to bear the cost of transportation of crude as they did earlier.The loss of public sector oil marketing companies like IOCL, BPCL and HPCL Offset to a great extent by the Central Government by offering 33.3 per cent discount 42.7 per cent loss is also offset by the Central Government by issuing oil bond. This however, affects cash flow. Though cash is not available, the taxes etc are to be paid on the accrued earning. These reliefs available to oil marketing companies till now are not available to NRL.In the changed scenario unable to sustain the growing losses without government assistance, Reliance and ESSAR have closed most of their retail outlets now. NRL, a Government of India undertaking has also decided to close down its retail outlets in a phased manner.Permission of Government of India was obtained by NRL in mid nineties to set up about 500 retail outlets across the country. The first few such outlets were set up around 2005. Today there are 108 outlets across the country. Now a question has arisen why after starting the marketing activities NRL got into trouble presently. In late nineties there was some instructions from Petroleum Ministry to BRPL also to start retail marketing activities by BRPL. After some preliminary works, for various reasons BRPL did not pursue with the retail marketing activities. During the period when NRL obtained permission from the government of India to start retail marketing activities, the scheme of issuing oil bonds to oil marketing companies was the ague. The NRL loving people of Assam have a right to known from NRL management as to whether NRL sought clarification from Ministry of Petroleum and Natural Gas on applicability of such bonds to their marketing operation before starting retail marketing business.The Chief Minister of Assam has already taken up with the Prime Minister to mitigate the crisis of NRL. He should relentlessly pursue the matter till the benefits given to other public sector oil marketing companies are available to NRL also. However we should not stop by looking at the problems of NRL in isolation. There are problems in oil sector in the North East. Considering low availability of crude oil in Assam, the small capacities of refineries, need of transportation of products through long distance due to inadequate local market, heavy investment needed by refineries to meet the new fuel standards, lack of any other major industry in the region, a comprehensive plan covering oil exploration, production, refining and marketing by the oil companies working in the region is the need of the hour to make oil business in NE meaningful and rewarding.(The writer is a former GM of BRPL) Source: Assam Tribune