Government Move To Get Oil Companies To Hedge Crude Oil Price Runs Into Red Tape

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New Delhi: The government has been considering a series of steps, including a reduction in levies and hedging of bets that would have covered the risk of prices going below or above a certain level but the government's move to get oil companies to hedge crude oil price risk as part of the rejig plan for pump prices has run into a bureaucratic wall.

While the plan has not been junked, a decision will be announced at an "appropriate time", said an official working closely on the proposal. After the Karnataka elections, the government had faced flak as retail prices of petrol and diesel repeatedly went past record levels, putting pressure on household budgets, prompting the government to deliberate on a strategy to combat the impact of a jump in global crude oil prices, which have softened over the last few weeks.

Sources said the proposal for oil companies to hedge their bets was part of the plan based on experience in other countries such as Mexico. The plan entails paying a premium to cushion the impact above or below a certain level. Alternatively, there can be a delivery-based mechanism where the prices are locked three months in advance with no premium to be paid.

But officials are opposed to the plan to hedge risks related to global crude prices, fearing that they may face action in case of a wrong call although the political leadership is of the view that there will be adequate protection for government officers as well as executives of public sector oil PSUs.

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