RIL request for PSU fuel denied

NEW DELHI: The government has turned down a proposal of Reliance Industries (RIL) to source fuel from PSU oil marketing companies (OMCs) to meet their retail requirements. This comes close on the heels of the company’ proposal to convert its existing Jamnagar refinery into an export oriented unit.

RIL had proposed that fuel bought from the PSU companies would in turn, be sold to Reliance’s customers at the same price, while under-recoveries would be borne by PSU oilcos and ultimately by the government. The proposal aims at saving private oil retailers from predatory pricing of public sector OMCs like IOC, BPCL and HPCL.

In order to save its fuel retail business from “forced predatory pricing by oil PSUs,” RIL has again approached government with fresh proposals. In a letter to the petroleum secretary, RIL has suggested three options to create a level playing field in the petroleum retailing business.

A senior government official, however, said that none of the RIL proposals could be considered and “RIL should merge its refining and retail businesses instead,” so that loss in retailing could be compensated by huge refining (profit) margins. Looking at all the operations in a comprehensive manner, the company still managed to make profits.

RIL’s first suggestion is to make a one time reduction in excise duty to remove any need for subsidy and having a variable excise duty structure linked with international prices. A Re 1/litre reduction in excise duty is suggested for petrol and diesel corresponding to every $3/bbl increase in Dubai crude prices and vice versa.

The second option is to make adjustment in excise payments at producing refineries based on the gate passes for removal of product ex-refinery by a pre-approved level of subsidy. The third solution is to calculate subsidy applicable for each refiner on a per litre basis at the end of each quarter, based on international prices and permitted retail selling prices, and pay the same to each refiner based on domestic sales as per excise gate passes. RIL, which has made investments to the tune of Rs 4,000 crore in oil retail business, said that the government had “unwillingly become a party to killing healthy competition (in oil retailing).”

“MS and HSD are highly price sensitive products. Any attempt to sell products at prices higher than PSU OMCs would result in ‘no sale’. It has not only nipped the emerging competition in the bud but also rendered the heavy investment made by RIL (on the basis of what government had notified and authorised) in the development of a modern retail network, a national waste,” RIL said in the letter.

RIL said that it made investments in the oil retailing on the basis of published policy of the government. It cited the March 28, 2002 notification that declared that “Consumer prices of motor spirit (MS) and high speed diesel (HSD) will be market determined with effect from April 1, 2002.”

While in principle, government allows oil companies to determine retail prices of petrol and diesel, it forces public sector oilcos to sell the products at government specified rates. The losses of PSU oil companies are met through oil bonds and budgetary support. But no support is extended to private retailers like Reliance. It is not feasible for private companies to match retail prices offered by the public sector OMCs, but if they raise price to meet their cost, they lose customers to IOC, BPCL or HPCL.