The Hindu Business Line : Oil firms decide to stop discounts to Railways

Discount rates
In 2006, the discount was Rs 1,125.27 per kilolitre
In 2005, Rs 1,035.27 per kilolitre.
In 2004, it was at a much lower Rs 600.

Mamuni Das

New Delhi, Sept 10 The oil marketing companies seem to be eyeing a pie of Indian Railways’ Rs 20,153-crore cash surplus.

They have decided to stop offering the discounts they earlier extended to the country’s largest high speed diesel consumer — Indian Railways.

HSD supply

Railways, with an annual consumption of about 2 billion litres of high speed diesel (HSD), currently gets a discount of Rs 1,125.27 per kilolitre of HSD from most of the oil marketing firms in the public sector.

Oil marketing companies such as IOCL, BPCL, HPCL and MRPL used to offer this discount to the Railways over and above the rate at which they dispatch HSD to their retail outlets.

However, when the Railways recently invited price bids for procuring HSD for the calendar year 2008, the companies have not offered any discount.

The only exception is MRPL, which has offered a low discount of Rs 100 per kilolitre. Additionally, Essar Group has also offered to deliver HSD at Hapa on a freight-on-board basis, said sources.

The new rate contract is being processed at present and has not been firmed up as yet.

Discount offer

For HSD supply to Railways in 2007, even though oil marketing companies had offered discounts in the range of about Rs 300 per kilolitre in their bids, Railways had managed to extract a higher discount of Rs 1,125.27 per kilolitre by invoking a certain clause in 2006 supply contract.

According to a clause of the contract that Railways entered into with the oil marketing companies for HSD supply in 2006, the Railways had an option to procure HSD at the same rates for calendar 2007.

Thus, when the Railways invited fresh bids for 2007 HSD supply and oil firms offered relatively lower levels of discount for 2007 (than 2006), the Railways decided to extend the 2006 supply rates for 2007 as well.

The discount for 2006 was Rs 1,125.27 per kilolitre compared with the discount of Rs 1,035.27 per kilolitre in 2005. In 2004, the Railways used to source each kilolitre of fuel at a much lower discount of Rs 600.

Rate contracts

For HSD procurement, the Indian Railways enters into rate contracts with various oil marketing companies for the calendar year.

The rate is generally the same for all companies and when finalised, the Ministry informs all zonal railways of the agreed rate.

Various zonal railways are free to procure diesel from various companies as and when the need arises.