PSU Oilcos Forced to Buy Diesel from RIL, Essar at Int’l Rates

Pvt players rake it in as demand for diesel exceeds supply with petrol 70% more costly

 

Private oil companies, which have been pushed out of the fuel retail market because of cheap sales by state-run rivals, are having the last laugh as diesel demand has risen so rapidly that public-sector firms are forced to buy more fuel from Reliance and Essar at international rates. 
State oil firms such as Indian Oil, Bharat Petroleum and Hindustan Petroleum are buying almost 15 million tonnes of diesel per year from private refiners, including RIL and Essar. Demand for diesel far exceeds supply because petrol, the alternative transport fuel, is 70% more costly. In effect, Reliance and Essar are able to sell diesel at international prices in the domestic market without bearing the revenue loss which they would have suffered had they sold the fuel through their own pumps. According to government estimates, state firms are suffering a revenue loss of . 10.2 per litre of diesel they sell in the retail market. 
According to oil ministry's data keeper, Petroleum Planning and Analysis Cell (PPAC), while petroleum consumption recorded lowest monthly growth at 0.2% in April, about 47% of total consumption in that month was diesel. "This is one strong indicator of dieselisation of the economy due to price distortion among competing fuels," PPAC said in its latest report. Oil ministry, which is unable to raise diesel prices is asking the finance ministry to impose hefty excise duties up to . 255,000 on diesel cars. "There are two ways to check dieselisation of the economy, either pair diesel and petrol rates or dissuade people from buying diesel vehicles," an oil ministry official said. 
Diesel rates in the country are frozen since June 2011. It is sold at . 41.29 a litre in Delhi while petrol costs . 70.24 a litre in the metro. There is a wide gap between diesel and petrol rates despite Delhi government on Monday slashing 92 paise local levies on petrol and imposing 38 paise tax on diesel. Industry experts say that out of total state-run refining capacity of 120.066 million tonne (MT), about 40% output (48 MT) is diesel. But the annual consumption in the country is over 65 MT, which is largely met by purchases from refineries of Essar and RIL at market rates. 
IOC annually bought about 42% diesel from other domestic refiners in the first two months of current financial year. The company produced 4,485.4 thousand metric tonne (TMT) diesel in first two months of FY13 against a sale of 6,371.2 TMT in the same period, company officials said. "The shortfall is met through diesel purchases from domestic standalone refineries such as MRPL, Mangalore, as the first choice and thereafter from Essar Oil, Jamnagar and RIL, Jamnagar. In case, the complete requirement is not met through domestic refineries, the option of imports is considered," IOC spokesman said in a statement. 
rajeev.jayaswal@timesgroup.com