The Hindu Business Line : Oil marketing cos seek discounts from standalone refiners again

In a fresh turn of events, the state-owned oil marketing companies (OMCs) have again approached the standalone public and private sector refiners for extending discounts on sale of petroleum products by the refiners to the retailers.

Discounts to OMCs such as Indian Oil Corporation, Hindustan Petroleum Corporation and Bharat Petroleum had been discontinued with retrospective effect from April 1, 2006.

Sources in oil retailing companies said that the marketing companies were in talks with all the standalone refiners such as Reliance Industries Ltd and Mangalore Refinery and Petrochemicals Ltd (MRPL) for discounts. Standalone private and PSU refiners had been extending discounts on LPG and kerosene sold by them to retailers to partially offset the under-realisation suffered by retailing companies because of selling the products below the cost price following a Government mandate.

However, with RIL declining to extend any discounts for the current fiscal, MRPL had approached the Petroleum Ministry seeking a level-playing field on the issue. The Petroleum Ministry, after considering MRPL's request, felt that the standalone refiner could seek refund of discounts on LPG and kerosene from retailing oil companies with effect from April 1. When asked the reason behind once again approaching the refiners for discounts even after it has been discontinued, sources said, "We are not asking for discounts only for prospective period, but also for the retrospective period. Besides, the average crude price is still higher than $52 a barrel, which is higher to the price at which we sell," sources said.

The OMCs are currently selling the fuel at crude prices pegged at $50-51 a barrel (this varies from product to product), which was much lower than average crude price. However, the January to date average (January 11) price stood at $53.60 a barrel and April 2006 to date average (January 11) was $64 a barrel.

Though with the softening of crude prices the under recoveries have come down the companies continued to incur revenue loss on sale of petroleum products below the cost price. While the under recovery on petrol was about 23 paise, on diesel it was Rs 1.43 a litre. Kerosene is being sold at a loss of Rs 14 per litre and domestic cooking gas at Rs 150 per cylinder. Since, as part of burden sharing, the Government has issued oil bonds, and upstream companies like ONGC are extending subsidy, the standalone refiners also should meet their commitments. The Petroleum Ministry, on its part has left it to the commercial entities to sort out the issue, sources added.

The Government is expecting discounts of Rs 2,500-Rs 3,000 crore, similar to those last year, from the private and standalone refiners such as RIL, MRPL, Chennai Petroleum and Kochi Refineries. In 2005-06, RIL had extended a discount of Rs 750 crore, MRPL gave close to Rs 290 crore and the rest came from others.