A major increase in the percentage of spot tenders being issued for crude oil purchase by oil marketing companies (OMCs) in the last few years has led the Parliamentary Standing Committee on Petroleum to caution against the practice and ask oil public sector undertakings (PSUs) to better plan their crude purchases.
As a result, the petroleum and natural gas ministry will soon begin an audit into the issue, officials said.
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In a recent Bill tabled in Parliament, the committee has stressed that the average cost of purchases in spot tenders should be lower than term contracts.
Spot purchase has steadily been rising over the past few years. It reached 35.13 per cent of all oil imports in 2022-23, up from 27.58 per cent in 2017-18.
The committee has recommended that the ministry should conduct an audit to see whether the purchases in spot tenders have actually resulted in cheaper cost.
“We have taken note of the recommendations. An audit will be held. Oil companies have always tried to raise the share of spot contracts but global volatility, especially in major oil producing regions, have increased spot purchases,” a petroleum ministry official said.
Annual term contracts, which are usually for one year, are finalised considering some major factors. They are techno-economic analysis, supply security, international political and trade relations, and geographical spread of supply sources.
Spot purchases are resorted to by oil PSUs to meet the balance requirement, which is not covered under the term contract.
This gives flexibility to crude oil purchases based on seasonal market demand.
And, it also gives the option of exploring various new grades for which term contracts are not available.
It is generally expected that the spot tenders may be available at a cheaper price than term contracts. The purchases are done with national oil companies (NOCs) at the official selling price (OSP) of the country from which it is imported.
Whenever the quantities are not available from such countries the PSUs go to NOCs, who do not have OSP.
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The committee observed that the purchases between term and spot are approximately two-thirds and one-third for Indian Oil Corporation. Meanwhile, it was in the ratio of 60:40 for Bharat Petroleum.
It acknowledged that oil PSUs have autonomy and are the best judges to decide on the type of purchase for crude oil from international markets.
However, the panel noted that while all oil PSUs have created empowered standing committees (ESCs) for decision making on crude oil purchases, there is no uniformity in the composition of the ESCs of different PSUs.