Financial Daily from THE HINDU group of publications
Wednesday, May 03, 2006
Financial Daily from THE HINDU group of publications Wednesday, May 03, 2006 |
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Corporate - Outlook RIL seeks parity with PSUs over sale of petro products at controlled price Richa Mishra
Pricing woes RIL's under-recovery on motor spirit stood at Rs 103 crore and high-speed diesel, Rs 1,084 crore during fiscal 2005-06. While for similar under-recoveries PSUs are compensated by the Government through oil bonds or discounts from upstream companies, no such mechanism is available for private oil companies.
New Delhi , May 2 Private oil companies seem to be voicing concerns similar to those of state-owned oil marketing companies (OMCs) over the sale of petroleum products at a controlled price despite the surge in international crude prices. Seeking a level playing field, Reliance Industries Ltd (RIL) has requested compensation from the Government for under-recovery suffered on the sale of motor spirit (MS) and high-speed diesel (HSD) at a controlled price.
Compensation
According to sources, RIL has requested the Petroleum Ministry to treat it on par with public-sector OMCs while working out a compensation policy for marketing companies over the losses incurred in selling these products below cost price. The company, sources told Business Line, has informed the Ministry that it had incurred under-recovery of Rs 1,187 crore in 2005-06 on the two products. While the under-recovery on MS was Rs 103 crore, on HSD it stood at Rs 1,084 crore for the fiscal.
Heavy investments
Industry sources said RIL made heavy investments in the retail segment based on the expectation that the Government would allow market-determined prices. "MS and HSD are highly price-sensitive products and any attempt to sell them at prices higher than those set by PSU OMCs would result in no sale," the sources added. Such a situation would not only nip competition in the bud but also render waste the heavy investment by private companies, sources said. Also, private oil companies have captured a significant share of the MS and HSD market. This has led to a corresponding transfer of under-recoveries in the two products from oil PSUs to private oil companies, including Reliance, Essar and Shell, sources said. While for similar under-recoveries PSU OMCs are compensated by the Government through oil bonds or discounts from upstream companies, no such mechanism is available for private oil companies.
Govt intervention
The Government has prevented public-sector OMCs from increasing domestic prices in line with international prices, resulting in under-recoveries for OMCs. As per estimates, the under-recovery on MS and HSD suffered by public-sector OMCs stood at Rs 14,756 crore during April 2005-March 2006. RIL was granted marketing rights for petroleum products in May 2002. The authorisation, however, does not envisage a situation where the Government would intervene and disallow adjustment of domestic prices in line with international prices of crude and petroleum products, sources said.
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