The Hindu Business Line : Freight cut on petro products unlikely to impact prices

According to public sector oil marketing companies, the reduction in freight will result in annual savings of just between Rs 75 crore and Rs 80 crore annually.

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New Delhi Feb. 26 The Union Railway Minister, Mr Lalu Prasad's Rail Budget on Monday has made another attempt to combat the threat from pipelines in the case of transportation of petroleum products.

The Budget for 2007-08 has offered around five per cent lower freight charges on transport of petrol and diesel by the oil companies, but the move is unlikely to translate into any significant reduction in selling prices of these products.

According to public sector oil marketing companies (OMCs), the announced reduction in freight will result in annual savings of just between Rs 75 crore and Rs 80 crore annually and, therefore, will not really transfer much to the consumer, as the impact would be marginal.

IOC expenses

The Railways transport almost 35-40 per cent of the 54 million tonne petrol and diesel consumed domestically per year. The expenditure on freight rate for Indian Oil Corporation is expected to come down by Rs 40 crore annually for moving petrol and diesel from refineries to the consumption centres, a senior company official said.

"Whether this would result in a saving or not remains to be seen. We have to wait for the final directive."

Besides, the retail price determined for petrol and diesel factors in a notional 50 per cent of the prevailing rail freight. Bharat Petroleum Corporation, while stating that the impact would be marginal, said it would like to wait till it receives the notification and directive from the Petroleum Ministry. Echoing similar views Hindustan Petroleum Corporation said the fine print had to be read before any final comment. Any benefit would also depend on the distance of movement, the official said.

Reliance Industries also felt the impact would be marginal. The company is moving products worth around 2 mt through the Railways. Hence, the impact would be to that extent, sources said.

Mr A.N. Sinha, Managing Director, Essar Oil Ltd, said, "Reduction in railway freight will encourage rail movement of products and reduce landed cost, particularly for oil marketing companies."

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