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JUN 19 2012

PSU Oilcos Forced to Buy Diesel From RIL, Essar at Market Rates

  • Economic Times, ET Bureau / Hyderabad
  • Created: Tue 19th JUN 2012

At 48 million tonnes, state-run cos’ refining capacity falling short of annual consumption of 65 million tonnes

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 . 10.20 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 monthly growth at 0.2% in April (lowest in the last one-and-half years), 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 fearing stiff opposition from within the ruling UPA and its allies such as Trinamool Congress, 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 annual consumption in the country is over 65 mt, which is met by buys from Essar and RIL at market rates.

IOC, India’s biggest oil refiner with a capacity to process 66 MT crude oil, 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 current financial year 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. Similarly, BPCL, which has a capacity to process 30.5 mt of crude oil a year, produced 11.719 mt of diesel in 2011-12 but sold 14.760 mt. “We met part of the the diesel shortfall from refineries of RIL and Essar and partly, from imports,” one BPCL official said.


Delhi Essar Electric Power Development Corporation Limited Mangalore Refinery And Petrochemicals Limited Oil Diesel Reliance Industries limited Petrol Public Accounts Committee Petroleum Hindustan Petroleum Corporation Limited Bharat Petroleum Corporation Limited Indus Prospecting Licence Delhi government Diesel rates Essar Essar Steel Essar Oil Ltd.

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