The Hindu Business Line : Oil marketing cos to save Rs 90 cr on lower freight

New Delhi, Feb. 26 The Railway Minister, Mr Lalu Prasad, on Tuesday made another attempt to attract the oil marketing companies (OMCs) to prefer Indian Railways (IR) over other modes of transportation like pipelines and tankers for petroleum products.

The Rail Budget for 2008-09 has offered around 5 per cent lower freight charges on transport of petrol and diesel , but this is unlikely to translate into any reduction in selling prices of these products.

According to public sector OMCs, the reduction in freight will result in annual savings of about Rs 90 crore, therefore, will not really transfer to the consumer, as the impact would be marginal.

IR transports about 35-40 per cent of the 54 million tonne petrol and diesel consumed annually. Of this, over 40 per cent of the annual consumption of petrol and diesel is moved through pipelines and the balance 20 per cent is transported by road. Transportation of petroleum products through pipelines remains the cheapest mode, and it is one-third of the railway freight.

The five per cent cut in rail freight will, therefore, not have an impact on the price build-up as the new freight charge would continue to be higher than what is accounted for in the price build-up.

Marginal impact

Indian Oil Corporation Ltd (IOC), Bharat Petroleum Corporation Ltd (BPCL) and Hindustan Petroleum Corporation Ltd (HPCL) echoed similar sentiments that the impact would be marginal. “We will wait for the fine print,” the oil companies said.

In his last Budget, the Railway Minister had announced 5 per cent reduction in freight rates on the two products. However, a surcharge of 6-7 per cent was levied subsequently. The possibility of a surcharge still looms over the oil companies in 2008-09.

IOC is expecting a saving of about Rs 20 crore due to this proposed reduction. While BPCL expects to save Rs 30-35 crore annually on the movement of all products, savings would be less if only petrol and diesel are calculated. HPCL is looking at a saving of about Rs 38 crore.

Impact on IOC

The reason for lower savings for IOC is because it transports a certain quantity of petroleum products for BPCL and HPCL as well. “Besides, the company’s dependence on IR for products transportation is much lower than others due to its extensive product pipeline network,” an IOC official said.

Private sector player Reliance Industries Ltd also felt the impact would be marginal, as the company’s total quantum of product movement through the Railways has also gone down. Essar, the other private sector player has started moving petroleum products through Railways only this month.

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