Sunday, June 22, 2008

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.

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