Energy Deregulation - The Irony

I was reading an article, written by a professor from Columbia University, today in economic times. I was fascinated by what I read and wanted to share it here. The professor talked about the history of the role the government has been playing in energy regulation. The most recent Bharat bandh was a testimony to the fact that freeing up energy prices is a very socio sensitive issue in India.

We all know that how energy(petrol, diesel, kerosene and LPG) is regulated in India. The oil marketing companies have been minting losses as they are forced to sell at prices, which dont help the companies in recovering their costs. This is a burden put on the companies by our governement, which compensates the companies by issuing oil bonds, which the companies can redeem later. The government benefits by imposing tax on energy.

Begining with the members of the UPA it can be safely assumed that they currently support the dismantling of the APM(administered price mechanism). But, looking back in history it was the United front government of prime minister IK Gujaral, which had started this reform in 1997. Congress was then on the board of the reform.

The Gujaral government's tenure was shortlived and was succeeded by NDA under the leadership of Atal Bihari Vajpayee. In 2001 the FM Yashwant Sinha announced his intention to deregulate energy prices. He got cabinet approval and prices were deregulated effective April 1, 2002.

According to reports, petrol prices rose 27% and deisel price rose 22%. Since this ment economic viability to Oil and Marketing Companies, Reliance proposed to open 5000 retail outlets relative to the existing total of 20,000 PSU outlets in India.

But that was not to be, as NDA was toppled by UPA again. The congress, which had supported the United Front on energy deregulation now danced to the tunes of the left and the socialists within the party. And, for the rest of it's term, the UPA put a tight lid on the oil prices.

Think about Reliance, which still has so many non operative petrol pumps across India.

But fortunes split again as the left split from UPA and congress came back to power. Now, PM Manmohan Singh and FM Pranab Mukherjee have gathered the courage to dismantle APM again. The irony, is that as petrol prices were freed, Sushma Swaraj(who is a member of NDA) called a Bharat Bandh. NDA was the same government that wanted to dismantle APM when it was in power.