The Hindu Business Line : Why India has been exporting diesel, and importing it too

New Delhi, May 5 While Indian public sector oil refiners have been importing diesel to meet the rising domestic demand, the private sector major Reliance Industries Ltd (RIL), which enjoys export-oriented unit (EOU) status, has been exporting the product from its Jamnagar refinery.

The surge in diesel consumption saw imports soaring more than nine times to 2,88,600 tonnes in March. The total for the year 2007-08 at 2.93 million tonnes (mt) was more than double that of the previous year. Apart from PSU refiners, domestically diesel is also procured from Essar Oil with IOC buying over 1 mt a year from the company’s Vadinar refinery. The PSU refiners are not exporting any diesel.

Overall, Indian refiners exported 17 per cent more petroleum products in 2007-08 at 39.32 mt than the previous year, with two-thirds of it being exported by private refiners. Diesel constituted over 36 per cent of the total exports. Other drivers of exports were naphtha, petrol, and ATF. In March, exports grew 8.5 per cent to 3.36 mt.

What prevents Reliance

Being an export-oriented unit, if Reliance wants to sell the products in the domestic tariff area then it will have to bear certain taxes including local levies, which will push up the end-product price. “The high product cost also becomes unviable for domestic marketing companies,” a senior Indian Oil Corporation official told Business Line.

To sell in the domestic market, an EOU will not only have to pay duty on the products, which is on the higher side, but also bear the local taxes. RIL is, however, selling its committed quota of liquefied petroleum gas (LPG) in the domestic market because the Government had given a directive to sell this product in the local market in view of the prevailing shortage.

To meet more of the domestic diesel demand from local sources, PSU oil marketing companies are in talks with RIL for sourcing diesel from its Jamnagar refinery. Official sources said that discussions are going on between the two companies to see how purchasing petroleum products from RIL’s refinery can be made economically viable for all. He said an attempt would be made to get a waiver from the Government on tax levies to make the transaction financially beneficial for both the companies.

To allow a refiner with EOU status to sell in the domestic market, changes in policy would be required by extending deemed export benefits to the products. Deemed exports refer to transactions that substitute for imports and under which the goods supplied do not leave the country and the payment is made either in Indian rupees or in free foreign exchange. The EOU status exempts RIL from paying local taxes, making it eligible for zero duty on crude imports for the refinery.

Consumption growth

Consumption of all petroleum products in the country during 2007-08 stood at 129.24 mt (120.74 mt), propelled by rise in diesel and petrol sales.

Diesel is the most widely used oil product in the country and its sales rose by 11.1 per cent to 47.63 mt. Petrol sales increased by 11.2 per cent to 10.32 mt compared with the previous year. According to experts, the growth in consumption is in line with growth in the economy and the cap on retail selling prices of diesel had pushed sales. Demand for oil products grew 6.3 per cent in March. Diesel sales, which account for nearly a third of domestic sales of petroleum products, grew by an annual 10.6 per cent in March while petrol was up 6.5 per cent.

In financial year 2008, exports from RIL refinery soared 22.1 mt (17.7 mt). The Reliance refinery sales during the last fiscal was driven by higher volumes of diesel and ATF, with exports accounting for 63 per cent of aggregate volumes.

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