The Hindu Business Line : PSU oil cos seal discount deal with Reliance Ind

THE public sector oil companies have finalised a deal with Reliance Industries Ltd to purchase 4.3 million tonnes of petroproducts at a 37 per cent discount in 2004-05.

During the current fiscal, Reliance is set to sell around 11.5 million tonne of products to these undertakings at nil discount.

The latest decision is spurred by a drop in demand that it set to take place due to introduction of new refining capacities in the public sector fold.

The discount is a fallout of the fact that the oil marketers have been released from a `take-or-pay' contract with Reliance.

The discount offered by Reliance in 2004-05 will be on the difference between the notional domestic sale price realised had it sold through its retail outlets and the notional price realised by Reliance had it exported the products.

Since Reliance does not have retail outlets to absorb the quantities, it would be forced to export, but for the public sector oil companies stepping in to retail its products.

The domestic price is higher than the export price mainly due to two factors - tariff protection for domestic refineries as well as lower freight costs. Broadly, for every tonne of products exported, the realisation is lower to the tune of around Rs 1,200-1,500 per tonne. It is this potential gain that Reliance is sharing with the oil companies.

Although the deal is more or less through, Reliance has offered a higher discount if the offtake by the public sector marketers is increased.

It has offered a discount of 50 per cent if the public sector oil marketers absorb 6.1 million tonnes of products - five million tonnes of diesel, 0.8 million tonnes of kerosene and 0.3 million tonnes of LPG.

In the proposed formula to offtake 4.3 million tonnes, the marketing companies will pick up 3.7 million tonnes of diesel, 0.3 million tonnes of kerosene and an equal amount of LPG.

The Petroleum Minister, Mr Ram Naik, will be holding a meeting to oversee the finalisation of the contract on March 19.

The drop in demand from public sector marketers is mainly due to large capacity additions by the public sector companies.

BPCL and Chennai Petroleum Corporation Ltd (CPCL) would be bringing an additional three million tonnes (m.t.) each of refining capacity on stream in 2004-05.

Reliance had entered into a product sale agreement with the public sector oil marketing companies a few years ago when it was not allowed to set up retail outlets.

From April 2002, when it was allowed to set up retail outlets, the contracts with the companies allowed for a committed offtake of around 13 m.t for another two years.

This, in turn, facilitated a `soft landing' for Reliance into the retail market.

However, so far, Reliance has not set up a single retail outlet, although it has plans to set up around 350-400 over the next few months.

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