The Hindu Business Line : Maharashtra order leaves furnace oil users in a fix

At stake
Only Maharashtra has made licence mandatory for supply.
Even IT companies have started consuming furnace oil for captive power production.

Mumbai June 4 Manufacturing units in Maharashtra, which use furnace oil, may face disruption in production from June 15 if they fail to get licence to buy the oil.

The State Government has set a June 15 deadline beyond when oil companies will not supply furnace oil to unlicensed dealers and companies. Except Maharashtra, the largest consumer of furnace oil, none of the other States have made licence mandatory for supply.

The order

"As per the Maharashtra Solvent, Raffinate and Slop (Licensing) Order, 2007, licences have to be issued or rejected by the State Government within 45 days of receipt of the application. Most of the traders and companies which have applied in January are yet to hear from the Government," said Mr H. Subramanian, member of Petroleum Product Dealers Association, Maharashtra.

Acting on the Central Government's Solvent, Raffinate and Slop (acquisition, sale, storage and prevention of use in automobiles) Order 2000, State governments have initiated the licensing procedure.

Traders' query

Traders question as to why the licence covers furnace oil, which cannot be mixed with petrol or diesel in any form.

"The Central Government removed Tholin and Benzene, which can be easily mixed with petrol and diesel, from the purview of the licence requirement, just two months after its introduction in 2006, while retaining furnace oil and bitumen," said Mr Abhijit Bhattachariya, another member of the association.

The demand for furnace oil is the highest in Maharashtra compared to other States.

Of the total annual sale of 4.5 million tonnes in financial year 2006-07, Maharashtra consumed 1.7 million tonnes valued at Rs 3,400 crore.

Furnace oil, a derivative at the penultimate stage of crude refining, is used in almost all sectors except in electronics, engineering and information technology. "There is good demand for furnace oil. Even IT companies have started consuming furnace oil for their captive power production," said Mr Vinay Bhosekar, a Mumbai dealer.

Demand

Demand of high security deposits and a lengthy process has discouraged many traders from applying for the licence.

Security deposit

The security deposit depends on consumption. "Starting from a security deposit of Rs 10,000 for use of 100 kl (kilo litres) per month, it goes up to Rs 7.5 lakh for 10,000 kl. For consumption less than 100 kl, the Government collects a registration fee of Rs 5,000," said Mr Bhosekar.

Caught in jam

Caught in the furnace oil licensing jam are the commodity future traders. Furnace oil is being traded on the commodity futures market NCDEX and investors are not clear whether they have to obtain a licence for trading as well. Since the Solvent Control Order is passed under Essential Commodities Act, any violations will lead to imprisonment and hefty fines.

"Investors are hesitant, afraid that that they may end up with a delivery without a licence, though it is not mandatory for taking position alone," said Mr Arvind Pal Singh, Asst Vice-President - Energy, NCDEX.

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