Financial Daily from THE HINDU group of publications
Friday, Feb 27, 2004
Industry & Economy - Petroleum
RIL threatens to stop supplies to PSU oil marketing cos
Balaji C. Mouli
New Delhi , Feb. 26
RELIANCE Industries Ltd (RIL) has threatened to stop sale of petroleum products to public sector oil marketing companies (OMCs) from April 1, in case the OMCs do not pick up around 11 million tonnes, or a third of its refinery produce of 33 million tonnes during fiscal 2004-05, according to oil industry officials.
The public sector oil retailers have recently indicated that they would require only around 5 million tonnes of products during fiscal 2004-05.
During fiscal 2002-03, the public sector retailers picked up around 13 million tonnes and this year too, they are poised to pick up a similar volume. However, for fiscal 2004-05, the drop in demand is due to two reasons.
First, new refinery capacities have come up in the public sector fold and second, a take-or-pay agreement between Reliance and the retailers expires.
According to Reliance, if the public sector retailers are willing to purchase around 11 million tonnes from its Jamnagar refinery, the private sector petroleum major will look at offering discounts.
The public sector retailers have turned down the offer and instead said that they are equipped to dispense products throughout the country without any shortfall up to July this year. Beyond this period, imports can resorted to, the retailers have said.
The public sector retailers and Reliance are currently in negotiations to overcome the impasse and arrive at an acceptable solution.
A few years ago, in the absence of permission to retail petro-products, Reliance entered into an agreement to sell a part of its refinery produce in the domestic market through public sector retailers Hindustan Petroleum Corporation Ltd, Bharat Petroleum Corporation Ltd Indian Oil Corporation Ltd. Although the restrictions were lifted on April 1, 2002, Reliance enjoyed the security of supplying products to the public sector retailers on a take-or-pay basis for two more years.
This `soft landing approach' was adopted to give Reliance time to set up its own retail network and push products through the same rather be dependent on public sector retailers. However, only a few days ago only, Reliance opened its first few retail outlets.
The drop in demand for petro-products by public sector retailers will mean that Reliance will require to export the products.
The domestic market is more lucrative compared to the export market by a factor of around Rs 1,200 - 1,500 per tonne. This is on account of the tax protection offered to domestic refiners as well as the gains on account of transportations costs.
The export figure will be pruned to the extent that Reliance sets up retail outlets during the year. During the year, Reliance is likely to set up around 500 outlets and assuming that it dispenses around 500 kilolitres per month, consumption would be of the tune of 2.5 million tonnes per annum. Hence, it may require to export an additional 4.5 million tonnes during fiscal 2004-05.
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