The Hindu Business Line : To soften impact of global crude prices — `Oil marketing cos should pitch for better discounts from pvt refiners'

The Finance Ministry's comments come in response to the proposals sent by the Petroleum Ministry on measures to restore the financial health of the public sector OMCs.

New Delhi , Aug. 31

THE Finance Ministry is understood to have informed the Petroleum and Natural Gas Ministry that domestic oil marketing companies (OMCs) should try to get better trade discounts from standalone refiners, particularly the private sector refiners, while purchasing petroleum products. This can help cushion the impact of the spiralling international crude prices.

The Finance Ministry's comments come in response to the proposals sent by the Petroleum Ministry on measures to restore the financial health of the public sector OMCs.

The Finance Ministry has maintained that the change in the subsidy structure would have serious macroeconomic implications, and it needs to be studied along with the issue of price increase before any decision is taken.

The Ministry has suggested that OMCs could negotiate for trade discounts from standalone refineries.

These discounts would, however, depend on the "negotiating skills" and the "relative bargaining power" of the companies, the Finance Ministry has said.

As per provisional estimates, during July 2005 alone, OMCs have suffered a total cash loss of Rs 1,516 crore, though the upstream contribution, as and when finalised, may bring down the net losses, a Petroleum Ministry official said.

For the first quarter of the current fiscal, the OMCs — Indian Oil Corporation, Hindustan Petroleum Corporation, Bharat Petroleum Corporation, and IBP - have suffered losses of Rs 1,227 crore.

The OMCs have been negotiating over discounts with the private and standalone refiners on petroleum products, particularly kerosene and liquefied petroleum gas (LPG), supplied to them for retail sale. The marketing and finance heads of the state-owned OMCs have been in talks with refiners such as Reliance Industries Ltd (RIL) and MRPL. While the OMCs have been seeking more discount than what has been offered, indications are that RIL may not budge from the figure it has already offered.

Negotiations are on between the two entities (standalone refiners and OMCs) for a discount on the fuel purchase price to ease the subsidy burden of the marketing companies.

The refiners have offered a discount up to Rs 1,500 crore to all marketing companies.

RIL has offered a discount worth Rs 750 crore and MRPL has offered a discount of Rs 200-250 crore on the import parity price.

OMCs have been seeking higher quantities of kerosene for 2005-06 at a price that could offset their subsidy burden. RIL has agreed to supply 1.13 million tonnes (mt) of kerosene and 2.6 mt of LPG this fiscal to IOC.

A final decision on the discounts is still awaited, sources said.

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page