The Hindu Business Line : PSU marketers plan to raise offtake from Reliance to 4.8 mt

The discount offered by Reliance during the fiscal 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.

New Delhi , March 19

THE public sector oil marketing companies have proposed to increase the quantity of petro-products uplifted from Reliance Industries Ltd for fiscal 2004-05 by 0.5 million tonne to around 4.8 million tonnes at a discount rate of 40 per cent.

Following protracted negotiations over the last few weeks, the public sector marketers had decided to pick up 4.3 mt at a discount rate of 37 per cent. Reliance then pointed out that Hindustan Petroleum Corporation Ltd (HPCL) was procuring around 0.5 mt of products to be sold in the Mumbai area from Mangalore Refineries and Petrochemicals Ltd (MRPL). However, it would be cheaper to procure from its Jamnagar refinery in Gujarat, which was closer to the distribution area.

This proposed 0.5-mt additional purchase by HPCL will take the total offtake by public sector marketers to 4.8 mt.

During the current fiscal (2003-04), Reliance is set to sell around 11.5 mt of products to the public sector undertakings at nil discount.

The drop in demand for Reliance's products that is set to take place is due to introduction of new refining capacities in the public sector fold in the ensuing fiscal. The discount is a fall out of the fact that the oil marketers have been released from a `take-or-pay' contract with Reliance.

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 - Rs 1,500 per tonne. It is this potential gain that Reliance is sharing with the oil companies.

Of the 4.3 mt offtake so far negotiated by the oil marketers, 3.7 mt consists of diesel, 0.3 mt of kerosene and an equal amount of LPG.

Reliance had entered into 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 Reliance was allowed to set up retail outlets, the contracts with the state-owned oil companies allowed for a committed offtake of around 13 mt 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 in the next few months.