India: Slaying oil price Jabberwock: The need to create the Vorpal Blade

Last Updated: 18 September 2018
Article by Piyush Joshi

If the government intends to control the periodic decimation of the economy by cyclical increases in oil prices, it needs to adopt short-term (introduce differential pricing), medium-term (create a statutory oil price management fund) and long-term (shift from diesel to LNG/CNG) measures.

Rising oil prices are once again creating ripples in the Indian economy after a hiatus of six years. The strange thing is the government, when it was in the opposition, severely criticised the then government, but does not appear to be implementing necessary measures that would prevent it from being exposed to the same criticism.

It is almost as if the government thought that high oil prices will never occur and were only a phenomenon of the previous regime, and forgot the warning "Beware the Jabberwock, my son!" stated so well by Lewis Carroll in 'Through the Looking-Glass'. Well, it's back and the government has failed to develop any 'Vorpal Blade' that can go 'snicker-snack' at the oil price Jabberwock.

At the time of writing, there have been 16 price rises in 16 days since the end of the Karnataka elections. The political reaction of Kerala to cut the retail price by Rs 1 (which is done by cutting state taxes, and will only cost the state much-needed revenue), and of the Centre by directing oil companies to cut prices by a few paise, resulted in a subsidy of Rs 1.2 crore per day on the national daily diesel consumption volume and a subsidy of Rs 53.2 lakh per day on the national daily petrol consumption volume.

It is also strange to see the spectacle of the current opposition vilifying the limited discount "as a joke," considering it was their government that took the measures to float the retail prices fully to the international market without implementing any measures to ensure that retail prices remain buffered.

The government has also announced investment in 'futures'. This appears to be done more for the optics, since it is well known that it is expensive to look at futures when prices are rising. If the government intends to control the periodic decimation of the economy by cyclical increases in oil prices, there is a need to adopt short-term, medium-term and long-term measures.

Short-term measure: Oil companies undertaking retail sale of petroleum should introduce differential pricing, allowing for cross-subsidisation to occur whereby (1) the sale of diesel in rural areas, islands and the Northeast (used for tractors, farm equipment, small fishing vessels, irrigation gensets, public buses and taxicabs) is subsidised by the sale in urban areas, and (2) within urban areas, the sale to two-wheelers and cabs is discounted compared to sale to SUVs and private cars above a certain fuel tank capacity. Such a measure within urban areas can also be introduced by the introduction of volumetric sale price differential (i.e. sale of up to five litres at a lower price compared to sale above that, in, say, five-litre brackets). Such a differential pricing is not difficult to implement and can be rolled out almost immediately and maintained.

Medium-term measure: It could be the creation of a statutory National Oil Price Management Fund funded by (1) one-time transfer of a certain percentage from the profits of national oil companies, (2) an oil price fund cess on sale of more than 10 litres of petrol and diesel occurring at a time, (3) management of funds including investment in viable futures, and (4) issuance of tax-free securities by the statutory fund to raise further corpus.

This fund can be utilised to subsidise retail oil prices as it achieves a certain level of corpus and be released to the relevant oil companies that undertake retail subsidisation. The fund has to be statutorily protected from diversion in low oil price cycles, as it is during such cycles that it would grow and be capable of being used to provide the buffer for retail prices in high price cycles. It can be managed by professional financial management entities.

Another medium-term measure would be to decrease the use of third-party dealers by national oil companies and require oil companies to undertake direct sale through company-owned and operated retail stations. This immediately saves dealer commission, which for IOCL, BPCL and HPCL averages Rs 3.64 per litre (for petrol) and Rs 2.53 (for diesel). Removal of dealer commission by creating a direct retail chain by relevant oil companies will provide a considerable buffer in itself.

Long-term measures: These include shift in fuel for public transport, captive gensets, commercial trucking and private mobility, to LNG and CNG which, as a commodity, are cheaper than diesel and petrol, and also comparatively environment-friendly. This would entail (1) a nationwide roll-out of small-scale LNG infrastructure that can be undertaken through city gas distribution (CGD) entities or independently where CGD is not active, (2) incentives to shift from diesel to LNG and CNG or hybrid of diesel and LNG, including for state transport corporations, railways, interstate trucking companies, private vehicles, captive gensets used by housing societies, and (3) the use of the National Clean Energy & Environment Fund (NCEEF) to support the roll-out of small-scale LNG infrastructure and supply and incentivise conversion of private vehicles to hybrid LNG-diesel/petrol vehicles.

The price difference between LNG as a commodity and crude oil is stark, and shifting of personal and commercial transport from diesel to LNG will result in a drastic drop in the overall import bill. The national daily diesel consumption stands at 23.85 crore litres, and at an average price of Rs 72 per litre currently, it amounts to Rs 1,717.2 crore per day. If even 20% of the daily demand is shifted towards LNG, it would reduce diesel consumption to 19.08 crore litres per day, and result in savings not only from the reduced diesel expenditure by corresponding amount, but also add further savings in light of the lower cost fuel (LNG) being used by the same vehicles.

LNG for trucking and public transport is especially attractive as it enables increase in operational life of vehicles and reduces cost, in addition to reducing pollution. The only challenge is the lack of infrastructure to support a nationwide roll-out of such conversion, and for that CGD entities and others (functioning outside CGD areas) need to be directed. It is expected that such a roll-out would take 3-4 years.

Electric vehicles are being touted as the next-generation development, but they won't have any major impact in the foreseeable future or even in the long term as small-scale LNG can have. The reasons are that they need electricity, which is in short supply, and India's power distribution and generation capacity will take time to support any major use of electric vehicles. Also, the development of charging stations will take a long time in terms of commercial licence of use and the cost of electricity for charging these vehicles would be high. Small-scale LNG infrastructure can be rolled out much faster.

Lastly, electric vehicles, over their life-cycle, are more polluting than LNG-powered vehicles as they will generate a large quantity of battery waste, which is toxic—moreover, India doesn't have battery waste processing capacity. LNG, on the other hand, does not add another category of waste. Implementing these measures should not only tide us through the current crisis, but also create the proverbial Vorpal Blade that goes 'snicker-snack' at the oil price Jabberwock.

The author is Partner, Clarus Law Associates—energy, infrastructure and project financing.

Originally published by The Financial Express, June 2018

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions