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Oil marketing companies (OMCs) and the Railway Ministry will soon start talks on pricing of diesel procurement.
This is because the contract defining the current discount level of 31.5 paise a litre for the Railways for high speed diesel (HSD) procurement is set to end in December .
The discount level extended to the Railways is a key indicator for all large customers of OMCs such as road transport firms, dealers, retailers and infrastructure project sites. Also, the OMCs save on distribution costs by selling directly to the Railways.
Indian Railways is the single largest HSD consumer in the country. It procured 2.86 million litre of HSD in 2010-11, 2.69 million litre in 2009-10, and 2.58 million litre in 2008-09.
The discount level for 2010-11, which was extended till December, is marginally higher than the 30 paise per litre of HSD (2009-10).
The discount to the Railways is over and above the rate at which the oil retailers despatch the fuel to their retail outlets. The despatch price varies across location and time period.
The Railways entered into an annual rate contract with OMCs, after issuing a public tender.
All OMCs that participate in the tender are informed of the agreed discount rate. The Railway Board then informs all the Zonal Railways about the agreed rate. Zonal Railways are free to procure diesel from oil companies that have their depots in their zones.
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