Can't extend volume discounts to current fiscal: RIL

Richa Mishra

Oil slick


RIL was extending discounts on LPG and kerosene till last year.
Last year, it extended discount of Rs 750 crore to OMCs

New Delhi, May 22

Reliance Industries Ltd (RIL) and the State-owned oil marketing companies (OMCs) seem to have got stuck on the product exchange agreement this year with the OMCs asking for the exchange agreement to be linked to the issue of discounts that RIL was extending till last year on liquefied petroleum gas (LPG) and kerosene.

RIL, which had given volume discounts to OMCs on LPG and kerosene sold by them to the State-owned entities, has expressed its inability to extend it to the current fiscal. Last year, RIL had extended a discount of Rs 750 crore.

Sources told

Business Line

that motor spirit and diesel were not a cause of concern as the OMCs barely depend on RIL for sourcing these two products. While the OMCs are agreeable to take these two products to the North East States for RIL in exchange for the latter uplifting their products in Gujarat on a tonne-to-tonne basis, they want the private sector major to also consider extending discounts on LPG and kerosene.

PSU oil companies already have an understanding among themselves that enables them to sell products in markets where they do not have a supply point. This in effect helps them expand their reach, industry sources said.

At a recent meeting convened by the Petroleum Secretary, Mr M. S. Srinivasan, on product exchange agreement, RIL is understood to have made suggestions for streamlining the system. According to sources, the Petroleum Secretary, while asking the OMCs to examine the proposal, cautioned that streamlining the procedure should not lead to shifting the tax burden from RIL to PSU entities.

Taking note of the increased export potential of petroleum products, RIL has suggested suitable product exchange agreements with PSUs whereby OMCs could source products by optimising transportation costs across the country and export the corresponding amount from Jamnagar. This would enable them to earn export credits and save on central sales tax and coastal freight movement.

The existing inland product pricing is based on import parity price, wherein the notional coastal freight is being borne by RIL and industry bears the actual freight charges.

Since both LPG and kerosene enjoy negative protection, the export realisation for RIL is more than domestic realisation based on this formula, the sources said.

(This article was published in the Business Line print edition dated May 23, 2006)
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