The prices of petrol and diesel have been reduced twice since Raghaw Sharan Pandey took over as secretary in the ministry of petroleum and natural gas. In conversation with Yeshi Seli, he points out that, ideally, the retail prices of petrol and diesel should be linked with the price of crude in the international market The price of petro-fuels has been reduced again within a span of less than two months. Your views... Yes, the prices of petrol, diesel and domestic lpg have been reduced for the benefit of the consumers. Ideally speaking, the retail prices of petrol and diesel should be linked to the price of crude in the international market. However, in India a view has prevailed (almost always) that the consumer requires protection and, therefore, the price of petrol, diesel, domestic lpg and pds kerosene have to be controlled. When the price of crude in the international market increased last year, the burden was only partially passed on to the consumers (June 2008), when the price of diesel was increased by Rs3. It should have actually risen by Rs20 per litre. Is the price of crude in the international market the only factor influencing the pricing of petro-fuels? Not really. There are two more factors that influence the pricing of these products in India. The first is taxes, which includes the levies made at the Centre and those in the states. And secondly, the impact that the increase in the price of crude in the international market has over the financial health of the oil marketing companies (omcs). Both these factors are taken into account, when prices are increased. There have been reports of omcs incurring losses due to the reduction in the price of petrol and diesel. Could you quantify that? When you sell petrol and diesel below the international price level, the financial burden on the omcs increases. It is for the same reason that the national omcs (Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation) collectively incurred around Rsl4,500 crore as losses between April and September 2008. We have to work on a mechanism to compensate their losses. What kind of mechanism could compensate their losses? While part of the losses have to be borne by the omcs and the remaining is taken care of by government by issuing oil bonds, upstream oil companies like Oil and Natural Gas Corporation and Gas Authority of India Limited also need to chip in. We are nearing the end of the financial year and under-recoveries are to the tune of Rsl lakh crore. omcs are already making losses and cannot contribute themselves. Upstream majors too have been protesting against making contributions for losses of omcs. A new formula needs to be worked out. The government is in the process of drafting a new mechanism for bailing out omcs, which make huge losses due to subsidising of petro-products. There is always some confusion about 'under-recoveries'. Could you explain? Under-recovery is the difference between the market price of a product and the actual cost the company incurs on manufacturing it. Interestingly, under-recoveries do not always indicate that a company is making losses. When do you think the price of crude would firm up again? For the past 10 days or so, there has been an upswing in the price of crude in the international market. The reduction in the price of crude is primarily due to recession the world over. Meanwhile, opec has decided to cut its production and this is one of the factors that led to a slight increase in the price of crude in the international market. Within a year or two, when recession ends, prices would go up again. What is India doing for energy security? India, as you may be aware, depends on imports for nearly 70 per cent of its crude requirements. And the demand is only increasing. The only way to salvage itself from this position is by either acquiring assets abroad or/and to explore within the country. In the seventh round of New Exploration Licensing Policy (nelp), we offered over 40 blocks for exploration and, in the forthcoming round (nelp viii), we intend to offer nearly 100 blocks for exploration. We need to be futuristic and should try and decrease our dependence on imports. Conservation of fuel and improving energy efficiency would also contribute towards building energy security in the country.