The Hindu Business Line : MRPL urges Ministry to change subsidy-sharing method

The issues
The company has forwarded the proposal that only the quantity of crude oil utilised for production of petroleum products consumed in the domestic market may be considered for computation of subsidy sharing.
MRPL, along with other public sector and private refiners, share the subsidy burden in the form of discounts to the oil retailing companies.

New Delhi , Sept. 3

Mangalore Refinery and Petrochemicals Ltd (MRPL) has again approached the Petroleum Ministry seeking a change in process of computation of subsidy sharing on kerosene and liquefied petroleum gas (LPG). The company has forwarded the proposal that only the quantity of crude oil utilised for production of petroleum products consumed in the domestic market may be considered for computation of subsidy sharing.

MRPL, along with other public sector and private refiners, share the subsidy burden in the form of discounts to the oil retailing companies. State-owned marketing companies take into account the entire quantity of crude oil processed by MRPL to establish the total quantum of subsidy on kerosene and LPG.

The company has been vigorously pursuing the issue with the Ministry as well as the retail marketing companies — Indian Oil Corporation Ltd, Bharat Petroleum Corp, Hindustan Petroleum Corp and IBP Co, but with little success. The Petroleum Ministry had earlier expressed reservations on having separate norms for individual refiners based on internal variations, sources said.

The mechanism

Sources told Business Line that MRPL had argued that since almost 50 per cent of its products were being exported, resulting in heavy under realisation vis-à-vis the refinery transfer price (RTP), only that quantity of crude oil which is used for production of products consumed in the domestic market be reckoned for the purpose. If this mechanism were adopted then the total burden of subsidy on MRPL for 2005-06 would work out to about Rs 141 crore against Rs 291 crore based on computation of total crude throughput, sources added.

The under-realisation on exports of MRPL products when compared with RTP works out to Rs 695 crore. The RTP is the cost to the refinery company plus excise duty minus the transportation charges. The product price at RTP is higher than what the company earns by exporting, sources explained. Even at the quarterly performance review meeting of the company, MRPL had pointed out that the other PSU OMCs were not supporting its refinery equitably for domestic evacuation. This has forced MRPL to export about 50 per cent of its production, leading to substantial under-realisation as compared to domestic sales.

Adverse position

"This puts MRPL refinery in an adverse position as compared to all other PSU refiners who are selling their products in the domestic markets at RTPs," sources said. Elaborating on this issue, sources said on the quantity of crude used for production of products to be exported, MRPL would be losing twice - by exporting at lower than RTP, and again if this quantity of crude oil is subjected to calculation of subsidy.