Oil prices and Ogra’s powers

While the federal government’s recent moves to limit its role in the economy is largely a welcome move. It seems that the government may have taken their laissez faire zeal a little too far. The decision to let oil marketing companies and refineries decide monthly prices, without an increase in the regulatory powers delegated to the relevant agencies, seems less like a principled deregulation and more like an abandonment of government responsibility. That the government must not be the authority to set prices for privately-owned and operated businesses is a reasonable assertion. What is unreasonable, however, is for the government to give them that authority without then expanding the mandate of the Oil & Gas Regulatory Authority (Ogra) to monitor their activities for collusive behaviour. While the oil marketing companies and refineries have the right to make profits, they do not have the right to do so by collusion. Given the fact that there are already very few players in these businesses, combined with the high barriers to entry, there is all the more reason for the government to try and ensure that the pricing strategies of these companies are above-board.

We are inclined to agree with Ogra officials, who said that the law that created the agency needs to be modified to give them greater regulatory powers before the government hands over pricing powers to the oil companies. Ogra was not alone in making this recommendation: it was also suggested by the Planning Commission and the Bhagwandas Commission, the judicial panel set up to investigate irregularities in oil pricing. That the petroleum ministry chose to ignore good advice from three sources is baffling. It should reconsider its position and either withdraw the pricing deregulation or grant more regulatory authorities to Ogra as soon as possible.

Published in The Express Tribune, June 29^th, 2010.