India’s century-old oil industry has negotiated various distinct phases.  It obviously took off as a private sector and continued as such till a few years after independence in 1947.  Then it became a joint sector within a decade of the country’s independence and ultimately the entire oil sector was nationalised and till the country came under the clutches of World Bank and International Monetary Fund (IMF), it was fully controlled by the state-owned enterprises.

Divesting Equity of Oil Major

Having failed to privatise the HPCL and the BPCL due to the judgment of the Supreme Court restraining the government from privatising these oil PSUs without prior approval of Parliament, the Union Cabinet Committee on Disinvestment has decided to privatise the ONGC and GAIL.

The BJP-led National Democratic Alliance government has decided to offload  ten per cent equity of ONGC and GAIL in the market which will result in these companies to part with around Rs.12,000 crore to bail out the government in attaining the budgeted target of resource mobilisation out of selling off public sector equity.  In the meantime, the Union Cabinet has also approved the selling the cross-holding in the oil PSUs in the market. The  IOC has 9.62 per cent stake in ONGC and a 4.8 holding in GAIL, ONGC in turn has a 9.11 per cent stake in IOC and a 4.82 per cent holding in GAIL. The GAIL has a 2.4 per cent stake in ONGC. Now with the decision of the Cabinet these equities shall go to the private sector.

At a time when the government has already decided to privatise the top profit-making  oil and petroleum PSUs, the decision to allow 100 per cent equity participation by foreign capital in the down stream of oil sector has thrown it open to foreign oil MNCs. The Cabinet in its meeting on 15 January 2004 has removed all curbs on foreign direct investment in the petroleum sector. The government has decided to allow 100 per cent FDI in petroleum refineries, marketing, pipelines for oil and gas and oil exploration.  Moreover, while removing the current curbs in these sectors, the government has also permitted investments through the automatic route instead of Foreign Investment Promotion Board. The automatic route is applicable in all the activities in both the up and down streams.

Private Sector Grabs Oil

With successive rounds of New Exploration Licensing Policy (NELP) many discovered oil blocks have already been grabbed by the Indian private monopoly houses and foreign oil MNCs. On the other hand the ONGC, the premier public sector oil company of the country, is compelled to compete with the private oil companies confronting many odds and disadvantages. It is an irony that ONGC is required to bid for the oil fields discovered by them. Take for example in the last round of NELP, ONGC was successful in 14 blocks out of 27 blocks on offer. If the time-tested oil and petroleum policy had not been changed, all the blocks would have come to ONGC instead of being grabbed by the Indian big business houses and foreign MNCs.  Contract for 20 oil exploration blocks under NELP-IV and 8 blocks under the second round of the Coal-Bed Methane Policy (CBM-II) is scheduled to be signed shortly as announced by the Union Petroleum Minister. 

Marketing Network Main Target

The main target of the privatisation attack on the oil PSUs is the marketing network.  The Reliance Group and the foreign oil giants want to grab the Indian petroleum market. In this connection it is important to understand the critical international situation in the oil and petroleum sector. The MNCs in the refining sector, mainly in the US and Europe are in great difficulty due to extra-installed capacity, over production, increasing inventory and reduction in capacity utilisation. According to ILO, “Owing to surplus production capacity, the refinery utilisation rate has been low. The world average utilisation rate in 1999 was 83.2 per cent, slightly down from 83.6 per cent in 1998.  The highest rate was in the Middle East with 97.2 per cent; the lowest in the former USSR with 45.2 per cent.” 

The private oil giants who submitted the ‘Expression of Interest’ (EoI) for outright buying of the HPCL included Reliance Petroleum Ltd., Royal Dutch Shell, Saudi Aramco, Petronas, Chevron Texaco, Kuwait Petroleum Corporation and a consortium of three Essar Group Companies. All the companies listed above have huge refining capacities and are desperate to capture the Indian petroleum market in a big way. It may be recalled that Shell was the second highest bidder in the privatisation exercise of IBP Ltd. This oil giant has a refinery in Singapore, which, as per reports, “operates at low capacity” for want of market there. Shell has already applied for permission from the Government of India to import petro-products in the country. Essar is currently setting up a 240,000 barrel per day refining capacity refinery in Vadinar, Gujarat scheduled to be commissioned in 2005. The Reliance India Limited with its 35 million tonnes capacity refinery has no retail outlet as of now. 

The same multinational oil companies who are given a red carpet welcome by the NDA government under the diktats of the World Bank and the IMF played a dubious role while they were at the command of India’s oil industry.  In the refinery sector, the experience has been one of betrayal by the foreign oil MNCs. The humiliation and exploitation of our people by the oil MNCs in pre-nationalisation days can be judged from the fact that crude oil and refined products were almost wholly imported from the Arabian Gulf region, principally from sources owned and operated by the concerned foreign oil companies or their affiliates.

Huge Fund Contribution to Government

One of the serious adverse impacts of privatisation of the top profit-making oil PSUs will be the stoppage in revenue flow to the central government exchequer from these PSUs. It is worth-noting that the oil PSUs have been continuously excelling in performance and enhanced contribution to the government on account of dividend, taxes and duties. In what is termed as “milking of public sector undertakings by the central Government in the form of higher dividends” the oil PSUs were compelled to declare an interim dividend amounting to Rs.2,739.58 crore against the financial year 2003-04 even before the close of the year. The ONGC has declared the highest interim dividend at 140 per cent amounting to Rs.1,678 crore. The next is IOC Rs.479 crore, GAIL Rs.126 crore, BPCL Rs.119.16 crore and HPCL Rs.103.84 crore. It may be recalled that for the financial year 2002-03, the oil companies – ONGC, IOC, HPCL, BPCL, GAIL, OIL, Numaligarh Refinery, Chennai Petroleum, Kochi Refinery, EIL, IBP, Bongaigaon Refinery and Petrochemicals Ltd. - have collectively paid dividends of Rs.8,862 crore. This amount constitutes more than 80 per cent of the budgeted receipts of dividends in the current fiscal year. The ONGC paid the highest 300 per cent dividend followed by HPCL, 200 per cent and that of IOC 160 per cent. In 2002-03, IOC contributed to the national exchequer Rs.33,007 crore and ONGC Rs.16,492 crore. Interestingly, the Reliance Industries Ltd, with much more higher turn over, has paid to the government on account of taxes only Rs.10,000 crore. Having noted the contribution of ONGC, IOC and RIL to the national exchequer, it is revealing to note the reserves and surplus of these three companies. The RIL has got Rs.28,978 crore, ONGC Rs.28,296 crore and IOC Rs.14,532 crore.  Therefore, it is clear that the so-called efficiency of private companies is marked by lesser contribution to the national exchequer.

All the oil PSUs earned a record profit in 2002-03. The net profit of the major oil companies has increased in the range of 69 per cent to 111 per cent. The ONGC has “added a new chapter in Indian’s corporate history, when the company crossed the Rs.10,000 crore profit mark and recorded for the first time a net profit of Rs.10,467 crore.”  The IOC,  the largest refining and marketing company, earned a net profit of Rs.6,579 crore,  BPCL Rs 1,822 crore and HPCL Rs1,537.36 crore.

In disinvestments proceeds, it is again the oil companies who have contributed the maximum to the government. The Standing Committee on Petroleum and Chemicals of the 13th Lok Sabha in their 42nd report has noted,  “The total receipts from disinvestments of PSUs between 1991-2000 were to the tune of Rs.26,148 crore.  Out of this amount 49 per cent i.e., Rs.12,867 crore were realised from oil sector.  During 1998-2000 only, the oil sector contributed Rs.7,217 crore as against the total of Rs.9070 crore which amounts to  80% of the total receipts from disinvestment.”

Attack on Trade Union Rights

The massive casualty of employment and virulent attack on trade union rights, specially in the oil industry, has become a matter of serious concern for the world oil industry trade union movement.  Huge retrenchment of workers and consequent large-scale reduction of employment in the oil sector has attained alarming proportions throughout the world.  There have been several waves of refinery closures resulting in retrenchment of thousands of employees. 

The report placed in a tripartite conference organised by ILO from 25 February to 1 March 2002 noted:   “The state-owned oil and gas companies have experienced a wave of privatisation and deregulation over the past decade.” (Para 1.1.3) The ILO report noted “Privatisation always carries with it the threat of unemployment.”

Right to collective bargaining is coming under heavy attack forcing decentralisation of negotiations and prolonged tenure of the agreement thereby imposing uncertainty on the question of future wage negotiations.

United Resistance

Against the BJP-led NDA government’s move to privatise the oil PSUs, strategically important for economic development and national security of the country, more than 150,000 workers of the public sector oil industries went on a day’s strike throughout the country on 16 December 2003.  The strike was spearheaded by the United National Forum Against Privatisation of Oil PSUs having trade unions affiliated to CITU, AITUC, INTUC, Hind Kishan Kamgar Sena, Maharashtra General Kamgar Union and several major independent recognised trade unions functioning in the oil PSUs.  

The success of the countrywide strike unfolded many important facts and added new dimensions to the anti-privatisation movement in the country. The strike totally rejected the fallacious claim of Arun Shourie, the Disinvestment Minister of the central government, that “workers of the oil PSUs are not against privatisation.” The depth and sweep of the strike clearly demonstrated the determination of the oil sector workers to fight the move to privatise the oil PSUs.