All you wanted to know about the OPA/APM but never knew where to ask
What is the role of the Administered Price Mechanism (APM)?
The efficiency of the APM depends entirely on the ability of the system to keep the OPA in balance.
What is the APM based on?
The APM is based on the retention concept under which refineries, marketing companies and pipelines are compensated operating costs and are allowed a return of 12% post-tax net worth.
Now that APM has been dismantled, what is to be done with the OPA?
Post-dismantling of APM, the entire oil pool deficit has been transferred to the general budget.
Who will be the major gainers of the deregulation process?
The major gainers of the deregulation process will be old players in the oil sector with depreciated units like Cochin Refineries, Bharat Petroleum, Hindustan Petroleum and Indian Oil Corporation.
Why will the new refineries be hit after the dismantling of APM?
New refineries like Mangalore Refineries, Essar Oil and Reliance Petroleum will be hit post-dismantling as their refining margins under the market determined pricing mechanism would be lower than that under APM. In addition to this, net profit will also be affected by high interest and depreciation out-go.
What is the Oil Pool Account?
The Oil Pool Account (OPA) is an account maintained by the government to provide uniform and stable oil prices by balancing high and low input costs.
How does the OPA help the government?
The system of maintaining an OPA helps the government to administer the prices of petroleum products according to socio-economic requirements.
How much is the Oil Pool Deficit in India?
Our Oil Pool Deficit currently stands at Rs 13,000 crore.
Was the OPA ever in surplus?
The OPA was in surplus till the late eighties. But the 1990s saw a deficit and by 1997, the account recorded a deficit of $ 5 billion, leaving the government the option to issue oil pool bonds. With international crude prices falling as low as $11 per barrel in early 1999, the OPA showed a minor surplus and this resulted in the oil pool bonds being redeemed.
What leads to a deficit in the OPA?
Events like hardening of international crude oil prices, an explosive growth in the consumption of subsidised petroleum products and the APM are the main contributors to any deficit in the OPA.
How much were the public sector oil companies entitled to charge?
The two national oil companies, ONGC (Oil and Natural Gas Commission) and OIL (Oil India Limited), were entitled to charge 77.5% of the FOB (free-on-board) price prevailing in the world market from oil refineries.
Of the realisations from oil, how much does the OPA get?
The OPA gets 22.5% of the landed cost of crude oil.
What is India’s approximate import bill on oil?
India’s import bill for the year 2000-01 was estimated to be Rs 528 billion.
How much is India’s subsidy bill on kerosene, LPG and diesel?
In 2000-01, India had a subsidy bill of Rs 7,360 crore for kerosene, 6,640 crore for LPG and Rs 9,130 crore for diesel.
How much was the demand for LPG and kerosene?
The total demand 4.7 mln tonne for LPG and 6.7 mt for kerosene in Apr-Nov 2001.
Source: CapitalMarket
-Aditya Raghuwanshi
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