The price of international oil has currently slipped into our comfort zone.  It is not however likely to remain there indefinitely.  Anyone with a historical bent knows that the oil industry is cyclical and that prices will slip out again.  No one knows when this might happen; nor at what pace.  But everyone must realise  that when it does happen the government should not  confront the same financial conundrum that they  faced over the past several years.  Their oil companies — the navratnas will, for instance, end FY 2008-09 with an ‘underrecovery’ of over Rs. 100,000 crores and this despite the positive margins that they have earned ever since oil prices came off the boil a few months back. The hard truth is that if the government does not have a well defined and clear policy for  product pricing the next time oil prices start to rise, the damage to the entire industry will be irremediable. 

A clear policy mechanism cannot be derived unless the decision makers clarify their thoughts on the nature and extent of desirable competition.  A related but equally important outcome of clarity would be to remove jurisdictional ambiguities surrounding the role of the petroleum regulators.  Today there are two regulators one for the upstream (exploration/production) and the other for the downstream (refining, marketing and gas).  Their roles and responsibilities have been explicitly set out but despite that  there is still considerable tension between the ministry and the regulators.  One gets the impression that while the government has appointed these regulators to foster competition, they remain reluctant to give them the tools and substantive freedom to secure that objective. 

... contd.