The Hindu Business Line : Railways gets Rs 150/kilolitre discount on high speed diesel

New Delhi, Jan. 22 Indian Railways, the country’s largest high speed diesel (HSD) consumer, has managed to negotiate a discount of Rs 150 per kilolitre of HSD from oil marketing firms for 2008. This is despite the oil companies’ earlier move to stop extending discounts to the railways in 2008.

In 2007, the Railways got 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 IOC, BPCL, HPCL and MRPL offered this discount to the Railways over and above the rate at which they dispatch HSD to their retail outlets.

However, about five-six months ago, when the Railways invited price bids for procuring HSD for the year 2008, the companies did not offer any discount. After that Indian Railways officials started negotiating for some level of discount for the new rate contract.

HSD rate

For HSD procurement, the Railways enters into rate contracts with various oil marketing companies for the year. The rate is generally the same for all companies and when finalised, the Ministry informs all zonal railways about the agreed rate. Various zonal railways are free to procure diesel from various companies as and when the need arises.

At two billion litres of annual consumption, Railways is the largest HSD buyer in the country and about 82-83 per cent of the supply to Railways comes from IOCL. Railways recently had a meeting with oil marketing companies when it firmed up the new contract.

Clause

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 Indian Railways invited fresh bids for 2007 HSD supply and oil firms offered relatively lower levels of discount for 2007 (than 2006), 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.

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