Sop opera: Oil cos fine with discounts if it's for India Inc
Robbing Peter to pay Paul is old hat. Public sector oil marketing companies are paying Paul and Peter both, and asking the government to make good the deficit.
NEW DELHI: Robbing Peter to pay Paul is old hat. Public sector oil marketing companies are paying Paul and Peter both, and asking the government to make good the deficit.
Even as they keep pump prices of petrol and diesel constant under political duress while global prices soar, the oil companies are busy giving steep discounts on other petroleum products whose prices are not administered by the government. So, while consumers enjoy discounted fuel prices thanks to the politicos, leading industrial consumers across steel, auto, glass and even road building sectors also get heavy discounts for the industrial fuel they buy from the oil companies.
Surprisingly, the fuel supplied by the oil companies are classified as freely-traded products where the government does not play a role in pricing. Discounts on the products — Bitumen, low sulphur heavy stock, light diesel oil and naphtha, to name a few — are up to 12% in some cases. The discounts, oil companies claim, are driven by market compulsions as each company competes against the other to retain market share.
It works this way: bulk industrial consumers are constantly pitting one company’s price offer against another to get a better deal. While this is a natural phenomenon in an open market, the discounts given in this industry are different. After all, with almost 75% of the total volume of production by the refineries being under controlled pricing, it is interesting that they end up discounting even the free trade products.
Says IOC director B N Bankapur, “We are compelled to offer discounts on the free-traded products. In some cases, it is because competitors offer discounts and we need to offer the same to retain customers. In some others, it is on social obligations like when we discount product prices for the National Highways Authority.”
ADVERTISEMENT
However, the industry appears to be divided on this. Some believe the oil companies would take a tougher stand because, in many cases, the bulk of the industry is controlled by the PSUs. “Imports, the alternative for consumers, is not an easy option as they require huge logistic support,” says a senior official in one of the oil companies.Citing an example of how discounts are given even when there are no threats from private sector firms, the official said, “Take the case of Bitumen, a product used primarily for road-building. This is one product market which is serviced only by the PSUs and yet the product is sold at huge discounts.”
Prices for the products range between Rs 22,000 per tonne to Rs 30,000 per tonne. A discount of 8-12% on the prices work out to a substantial sum at the end of the year. Oil companies who are expected to end up incurring an estimated under-recovery of Rs 70,000 crore in 2007-08 on controlled products may need to make every penny they can to protect their bottomlines.
Start a SIP with as low as ₹500 with ET Money App!
Download
The Economic Times News App for Quarterly Results, Latest News in ITR, Business, Share Market, Live Sensex News & More.
The Economic Times News App for Quarterly Results, Latest News in ITR, Business, Share Market, Live Sensex News & More.
ADVERTISEMENT
