The Hindu Business Line : Reliance to reimburse Rs 100 cr to oil marketing cos

THE Petroleum Ministry has decided that the public sector oil marketing companies (OMC) be reimbursed the `terminalling' charges paid by the companies to Reliance Industries Ltd (RIL) for purchase of LPG from its 31 million tonne Jamnagar refinery. The purchase is limited to LPG supply through the Jamnagar-Loni pipeline that was commissioned around three years ago.

The decision, if implemented, will result in a payout of around Rs 100 crore for Reliance. The entire amount will be netted by the exchequer. This is because the `terminalling' charges were billed to the Oil Pool Account (OPA), a creation of the Administered Pricing Mechanism (APM) regime that was dissolved in April 2002.

The OPA, which was deficit, was dissolved along with the APM and now reflects as Government bonds to oil companies. Following the dismantling of the APM, the `terminalling' charges were billed to the Union Budget, which provided subsidy for LPG.

`Terminalling' charges are levied to recover the cost of creating assets like terminal tankages to market LPG, which involve transportation through rail or road. In the case of transporting LPG through a pipeline, the tankages created as part of the refinery asset are adequate, according to Engineers India Ltd (EIL), consultants to the Petroleum Ministry.

The Reliance refinery was commissioned in 1999, while the pipeline was commissioned in late 2001. During this period, the product moved through road and rail for which a terminalling charge was levied.

When the pipeline was commissioned, the Government intervened and told the OMCs to pay an ad hoc `terminalling' charge of Rs 313 for every tonne of LPG purchased from Reliance through the pipeline route.

The OMCs, however, paid only 75 per cent of this amount since they felt that the tariff was very high and unjustified. The pipeline was commissioned in the APM regime when marketing assets created in the petroleum sector were remunerated on a `cost-plus' basis. The oil companies argued that the pipeline supply did not require any facilities and the refinery tankages were being compensated at the refinery end.

Even after the dismantling of the APM, the payment of `terminalling' charges to Reliance continued. At the beginning of the year, the Government finally washed its hands off the issue and said that fixation of `terminalling' charges was a commercial matter between Reliance and the oil companies. Negotiations between the OMCs and Reliance followed and a figure of Rs 38.44 per tonne of LPG was fixed as `terminalling' charge to be paid to the refiner for fiscal 2004-05.

The Ministry, meanwhile, appointed a consultant, EIL, to arrive at the final figure for the `terminalling' charge since its earlier quote was an ad hoc one. Last month, EIL opined that the `terminalling' charge in case of transport of LPG through the pipeline is nil. This week's reimbursement decision by the Ministry is a fall out of the finding of the EIL report.